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Operator: Good afternoon, and thank you all for participating in today's call. Joining me from Ceribell This approach is are Jane Chao, Co-Founder and Chief Executive Officer; and Scott Blumberg, Chief Financial Officer. Earlier today, Ceribell issued a press release announcing financial results for the quarter ended September 30, 2025. A copy of the press release is available on the Investor Relations section of the company's website. Before we begin, I'd like to remind you that management will make remarks during this call that include forward-looking statements within the meaning of federal securities laws and that these are being made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results or performance are forward-looking statements. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the Risk Factors section of our public filings with the Securities and Exchange Commission, including our quarterly report on Form 10-Q filed with the SEC on August 5, 2025. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, November 4, 2025. Ceribell disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. With that, I'll turn the call over to Jane. Xingjuan Chao: Thanks, Brian. Good afternoon, and thank you all for joining us for our third quarter 2025 earnings call. I'm very pleased to report on another strong quarter as we continue to execute on our key growth initiatives, while solidifying our position as the category leader in the point-of-care EEG. We have continued to expand patient access through new account growth and increased utilization, while advancing our robust product pipeline. We believe the strength of these initiatives is clearly reflected in our results. Total revenue for the third quarter of 2025 was $22.6 million. This reflects 31% growth over the same period last year and marks our 30th consecutive quarter of sequential revenue growth. Our performance is the result of the predictable recurring nature of our business model and continued excellence in commercial execution to launch new accounts and drive increased usage. Given these trends and momentum we built exiting the quarter, we remain confident in our core commercial strategy, and we are raising our full year 2025 revenue guidance. We now expect to deliver $87 million to $89 million in revenue for the full year 2025, which represents 34% year-over-year growth at the midpoint. Our success to date reflects not only strong commercial execution, but also the foundational work we have done to unlock what we believe to be an immediately addressable $2 billion market opportunity. Our primary focus is on establishing point-of-care EEG as a new standard of care for seizure management in the acute care setting. We believe that, every ICU and emergency department should have access to the Ceribell system and the benefits our solution provides. The need is both urgent and profound. There are roughly 3 million patients in the U.S. at risk for seizures in the acute care setting. Many of these patients will face long delays in diagnosis with conventional EEG, spending hours or even days. Others may never receive monitoring at all due to limited access to EEG or lack of clinical awareness. The consequences are significant as prolonged and untreated seizures can lead to severe and permanent brain damage or even death. Comparatively, the SAFER-EEG clinical trial has shown that the Ceribell system reduces the median time to EEG by 19 hours, while reducing patients' severe disability rate by 18%. At the same time, patients who are treated with antiseizure medication without EEG confirming seizures based on observation alone may be exposed to unnecessary risks, including incubation and extended ICU stays. The Ceribell system has been shown to enable a median reduction in ICU length of stay by 4.1 days. Ultimately, patients' lives and their quality of life are on the line, and we believe our platform can enable more timely and appropriate care. Helping these patients receive the care they need starts with working to make the Ceribell system available to hospitals across the U.S. To this end, we have steadily made strong progress in expanding our account base. As of September 30, we had 615 active accounts. This marks an increase of 31 accounts over the prior quarter, which is our largest sequential increase since becoming a public company. In parallel, we continue to broaden our reach across additional sites of care. As part of these efforts, we received FedRAMP High Authorization in the second quarter of this year, providing access to the nearly 200 hospitals within the VA system. We are pleased to report that following a successful recent pilot, we have been informed that the VA system intends to expand the usage of the Ceribell system even further in the coming quarters. As we expand into new facilities nationwide, we are also working with our current customers to drive usage and increase access across departments and patient populations. Our efforts to date have been successful with utilization per account increasing nearly threefold over the past 5 years. Still, we believe we are only 30% penetrated within our active account base, leaving substantial room for continued growth. Our top-performing accounts prove EEG solutions that we believe could what's possible. Usage within our top 10% accounts is roughly 3x higher than in average accounts of similar size, and these top accounts are still growing. These means that were still over 5,000 hospitals that do not have a point of Clarity seizure detection, illustrating the sentiment that we hear from physicians. The more EEG you perform, the more seizures you find. We aim to facilitate the replication and expansion of best practices used by these top accounts through continued training and education, clinical evidence generation, protocol development and expansion to new departments, including the ED. Our CAM team is critical in leading this effort, which is well underway. Finally, beyond the adult population, we continue to invest in expanding access to pediatric and neonatal populations. Earlier this year, we received 510(k) clearance for Clarity in pediatric population, make it the only seizure detection algorithm cleared for patients 1 year and older. We're actively developing this market through our ongoing pilot of pediatric clarity within our existing accounts as well as children's hospitals with full launch anticipated next year. Our confidence is backed by strong clinical data supporting our product. Recently, in September, we are pleased to see an abstract documenting technical validation of pediatric Clarity presented at the Neurocritical Care Society Annual Meeting. The retrospective study evaluated the performance of Clarity in detecting suspected status epilepticus across 645 pediatric patients aged 1 to 17. The results demonstrated a sensitivity of 94.4% specificity of 93.1% and a negative predictive value of 99.8%. These findings suggest that Clarity can accurately monitor suspected status epilepticus in pediatric patients over 1 year old, providing timely and actionable guidance to bedside team. With our AI-driven approach to product development, we expect these already excellent results to continue to improve as we build our database and continually refine our algorithms. We also remain committed to expanding access to our system in the neonatal population, having already developed a headcap that meets the needs of this vulnerable patient group. We remain on track with the development of a neonatal application of Clarity, which we anticipate to bring to market in 2026. In the meantime, we have launched multiple sites using the hardware without Clarity, and are conducting targeted market development efforts to better understand the nuances of the neonatal population. These investments reinforce our mission to helping to establish point-of-care EEG as a new standard of care for seizure detection in the acute care setting, serving all patients everywhere. We also estimated the addition of pediatric and neonate products could expand our current addressable market opportunity of $2 billion by approximately $400 million. We see a tremendous growth runway as we advance our mission. We will continue to invest in evidence generation, product improvements, provider education and the replication of the best practices from top-performing centers. Collectively, these investments combined with our established advantages give us great confidence in our ability to strengthen our reputation as the category leader and a trusted partner for rapid EEG and seizure detection and monitoring. Before I turn it over to Scott, I want to also briefly touch on the second horizon of our vision, making EEG a new vital sign in acute care. This requires developing a multimodal system that can become a routine part of care for all patients at risk of a range of neurological abnormalities. We plan to achieve this by expanding our detection capabilities into new conditions such as delirium and stroke. Our nearest-term area of focus for innovation is advancement of our delirium algorithm. We are pleased to be able to say we remain firmly on track with our development timeline. As a reminder, this is a market where there is no commercially available diagnostic device despite delirium being a pervasive and challenging condition that affects over 30% patients in the ICU. We are thrilled with our progress to date and expect to detail a more comprehensive vision for the opportunity and our associated commercial strategy in the coming quarters. It's important to note that our excitement around potential new indications such as delirium is directly connected to our mission to help establish point-of-care EEG as the standard of care. Broad adoption of the Ceribell system across our market for seizure detection gives us the installed base, data, trust, contractual relationships, security clearances and the sales infrastructure to rapidly develop and deploy new algorithms. We believe these new algorithms will significantly expand our total addressable market by introducing much needed solutions for new patient populations. We anticipate that, we will also create synergistic value by allowing concurrent monitoring for patients at risk of multiple overlapping conditions. As a result, in addition to providing access to new patients, these pipeline products are expected to directly drive utilization within our installed base. We expect they will serve as a strong growth engine for years to come while largely leveraging our existing sales infrastructure. To summarize, I'm incredibly proud of what we have achieved this quarter. Over 600 hospitals have adopted Ceribell, and our team is making meaningful progress in penetrating deeper within these accounts. And still, we remain very early in our journey to establish point-of-care EEG as standard of care in the $2 billion U.S. seizure detection market. We are currently used by roughly 10% of the hospitals that provide acute care service in the U.S. This means that there are still over 5,000 hospitals that do not have a point-of-care EEG solution that we believe could benefit from our technology. Within the customers that we do serve, we estimate we are only about 30% penetrated for patients who need timely seizure detection. Taken together, this suggests that we are only about 3% penetrated into our core market in the U.S. We aim to go deeper and wider to address the unmet needs of the remaining 97%, both through ongoing commercial efforts and by making investments in extending the life-changing benefits of the Ceribell system to additional patient populations. This includes monitoring neonatal and pediatric patients, which represents an incremental market opportunity of approximately $400 million as soon as next year. In parallel, we are working to go beyond seizure. We have made real progress in unlocking delirium and stroke. We believe that these indications represent a multibillion-dollar market expansion opportunity and serve as the foundation of our mission of making EEG a new vital sign. With that, I will now turn the call over to Scott Blumberg, our CFO, to provide a review of our third quarter results and outlook for the remainder of 2025. Scott Blumberg: Thank you, Jane, and good afternoon, everyone. As Jane highlighted, total revenue for the third quarter of 2025 was $22.6 million, a 31% increase from $17.2 million in the third quarter of 2024. The increase is primarily driven by increased adoption of the Ceribell system across new and existing accounts. Product revenue for the third quarter of 2025 was $17 million, representing an increase of 28% from $13.3 million in the third quarter of 2024. Subscription revenue for the third quarter of 2025 was $5.6 million, representing an increase of 44% from $3.9 million in the third quarter of 2024. In Q3, we continue to drive deeper into our accounts, increasing usage per account year-over-year. This was achieved despite abnormally high purchases relative to usage in Q3 2024, which led to excess product revenue during the comparison period. As a reminder, we typically see reduced usage in Q2 and Q3 relative to Q1 and Q4, driven by lower ICU census in the summer months. Gross margin for the third quarter of 2025 was 88% compared to 87% in the prior year period. As we enter Q4, I'll remind you that we will begin to transition to utilizing inventory acquired after the implementation of increased tariffs on products originating in China. Despite this, we expect to maintain gross margins in the mid-80% range in Q4. As we reported last quarter, we took proactive steps this year to establish an additional manufacturing line in Vietnam, which is now fully operational. This reduces our exposure to Chin a-based tariffs and positions us to benefit from potentially more favorable trade policies. Looking ahead, we believe initiatives undertaken this year to strengthen our supply chain and build resilience put us on track to deliver gross margins in the mid-80% range for full year 2026, assuming no changes to the currently proposed tariffs. Total operating expenses for the third quarter of 2025 were $34.6 million, an increase of 39% compared to $24.9 million in the third quarter of 2024. Noncash stock-based compensation expense was $3.3 million in the third quarter of 2025. 5 The increase in operating expense was primarily attributable to investments in our commercial organization, increased headcount to support growth of the business, legal expenses and expenses related to operating as a public company. Sales and weighted marketing expenses increased $1.1 million in Q3 compared to Q2. The sequential increase was driven by salary and our commission expenses associated with headcount expansion in Q3 as well as full quarter impact of headcount additions from Q2. Net loss was $13.5 million for the third quarter of 2025 or a loss of $0.37 per share compared to a loss of $10.4 million or a loss of $1.85 per share in the third quarter of 2024. An average weighted share count of 36.8 million shares was used to determine loss per share for the third quarter of 2025. Our cash, cash equivalents and marketable securities as of September 30, 2025, were $168.5 million. Earlier today, we filed a shelf registration statement on Form S-3 with the SEC as we recently became eligible to do so following the 1-year anniversary of our IPO. This is strictly a matter of standard corporate housekeeping as it allows us to maintain flexibility. But to be clear, we do not have any intention to pursue a financing transaction at this time. We remain committed to achieving cash flow breakeven with cash on hand and the strength of our balance sheet gives us a high degree of confidence that we can achieve this without raising additional capital. Turning now to our outlook for the remainder of 2025. Given our momentum in the third quarter of 2025, we now expect full year 2025 revenue to range from $87 million to $89 million, up from our prior guidance of $85 million to $88 million, which represents annual growth of 33% to 36% over 2024. We continue to add to our base of active accounts and have an extremely healthy backlog of accounts that have issued purchase orders to adopt the Ceribell System. While we do not provide guidance on our account base, it's worth noting that we intend to continue the practice we began in 2023 in which we defer launching new accounts in the second half of December. This approach is grounded in our historical experience that is better to avoid launching during the holidays as we've seen an uninterrupted attention to a high-quality launch is necessary to maximize usage during the first few weeks following launch, which we believe is critical to establishing healthy long-term utilization rates. With that, I'll turn the call back to Jane. Xingjuan Chao: Thank you, Scott, and thank you all for your time today. In conclusion, I'm very pleased with our third quarter performance and our team's ability to continuously advance initiatives that will enable us to realize our broader strategic vision. I'd like to thank our employees, our customers and the patients we serve for enabling us to continue our mission to help save lives while delivering substantial value to our stakeholders. Finally, we appreciate your support and continued interest in Ceribell. We look forward to providing you with updates on our progress in the quarters to come. I will now turn the call over to the operator for any Q&A. Operator? Operator: [Operator Instructions] Your first question comes from the line of Travis Steed from Bank of America. Travis Steed: Congrats everybody. Maybe to start with just on kind of 2026 and curious if you have any early thoughts at this stage, thinking about account adds and utilization and pricing, especially with the NTAP expiring for next year? Scott Blumberg: I can take that. Travis, we're not providing commentary on 2026. We'll, of course, provide guidance in the coming call. I think the fundamentals of the business and the sources of growth in terms of adding new accounts and driving usage will remain our consistent drivers. As it relates to pricing, we've seen a very high degree of consistency in pricing in our Headband this year. We've seen an increase in the Clarity ASP as we've driven more recorders into existing sites and expect to maintain strong discipline as we think about pricing going forward. Travis Steed: Okay. That's fair. And then maybe a question on the neonatal opportunity. I appreciate all the information on the call. But when you think about launching that, maybe just provide a little more color on how the full launch looks for that in '26. And do you need to add new accounts that are neonatal accounts? Or do you kind of go deeper in your own accounts so you can go faster? Just trying to think about how that actually launches and rolls out. Xingjuan Chao: Yes. So the short answer is both in terms of open new accounts through neonatal as well as existing accounts. Out of the about 850 Level 3 and Level 4 NICUs in the country, our existing installed base represents roughly 200 NICUs already. So for those 200 NICUs, that would be more a departmental expansion. So we put that more under the growth category of same-store growth driving utilization. Outside that, there are 2 different market segments. One is the other -- the 280 children's hospital. We currently are barely presented in the children's hospital, not surprisingly because our product is very adult focused. So that represents more new account acquisition. Even beyond children's hospital, we have initially seen strong interest from NICU through especially Level 3 community hospital often have to transfer patients out for lack of EEG. So we also anticipate that NICU can drive new account addition due to strong support from NICU. Operator: Your next question comes from the line of Robbie Marcus from JPMorgan. Robert Marcus: And congrats on a nice quarter. Two for me. First, I really want to ask on just the progress you're making in penetrating accounts, educating the different components of the hospital. And I know last year, you spent a lot of time and focus building the model to make sure that new accounts ramp up in a consistent and sustainable manner. And just your progress there and the traction you're getting? Xingjuan Chao: Yes. I would say, the success there is a continuation of we have seen historically. As you can see, we continue not just driving account acquisition, but also utilization. Specifically, this year, we rolled out a few initiatives that we have been seeing success. One is, as Scott mentioned briefly, that we start to encourage the team successfully team bring more additional recorders to existing accounts that often is leading to additional departments using our device. So, we can see very strong correlation between growth and those initiatives. The second initiative we rolled out, we start seeing impact in this year, and we anticipate seeing even more impact next year is partner with physicians on protocolization of patient population. We've especially seen success of that with cardiac rest or post-hemorrhagic stroke, which are clearly recommended by the guideline. As hospitals do not always update their guideline every quarter, it's often every year. So, as we can -- we anticipate next year, we'll see continued growth there. The other initiative more is about building on continued education to physicians as well as nurses, also continue quarterly engagement to the administrator to not just theoretically show the economic value Ceribell bring, but using their own clinical data to show the economical value. Robert Marcus: Great. Maybe one on expenses. Your selling and marketing and R&D as per the guidance came in above the revenue growth. I respect you'll comment on 2026 on the fourth quarter earnings call. But how are you thinking about revenue versus OpEx growth in the short and medium term? And how do you feel about your progress towards cash flow breakeven? Scott Blumberg: Yes. I think we came into this year with a successful IPO raising more than we intended and a big portion of that proceed was invested in expanding the commercial infrastructure. The nature of our model is that, there's a delayed impact. And so, the kind of the nature of the relationship between sales and marketing growth this year and revenue is a reflection of that, the investment comes ahead of the outcomes. Of course, we'll continue to look for opportunities to grow. But our current thinking, at least on the account acquisition side, is that the size of expansion we saw over the last year would probably be less in the coming year. And so, I'd expect the growth to moderate there a bit. And the investments that will -- that we've made this year should start to generate impact as we get into 2026 here. As far as cash goes, with an 88% gross margin and pretty strong control over our investment, which is tied almost entirely to growth and very little to maintenance, we have the flexibility to continually adapt our investment strategy to ensure that we always stay safe in terms of sufficient cash cushion. Operator: Your next question comes from the line of Brandon Vazquez from William Blair. Brandon Vazquez: Can you start maybe by talking a little bit about utilization growth across accounts by tenure, especially those that you've been talking about some of these initiatives to establish protocols at the accounts where patients versus ID guidelines should be getting EGs. Are those kind of older, more tenured accounts continuously growing in utilization? Just kind of curious, the question is more around your more tenured accounts. Has utilization growth been pretty consistent? Just to know if that's a good signal for growth going forward as your new accounts ramp? Xingjuan Chao: Yes. Thank you, Brandon. There are quite a few drivers under the growth we've seen from more tenured or top accounts, and we see many of these drivers would continue driving both top, or just all the rest of the accounts. The #1 driver is what you already articulated, which is the external guidelines. The stroke -- seizure management for the stroke population guideline came out in 2022 and 2023. The cardiac guideline came out end of 2019. So -- and then there's COVID. So, there's quite a few -- many hospitals still are not fully adopted to this guideline yet. For our top account growth, we often just see the hospitals start to, over time, rolling out one protocol over another, first cardiac rest, then ICH patient. So that's a continuous driver. And even our top accounts, I would say, not every single population group are fully on protocol yet. That's why we anticipate to see the continuous growth there. The second driver is the departmental expansion. Even our most tenured accounts or our top usage accounts are not in every single department yet. They might be in all the ICUs and ED, but they might not be in the step-down units or in the -- on the floor with the rapid response nursing team yet. And of course, as we start to launch pediatric and neonate, there will be further departmental expansion. The third driver, I would say, is more driven by our internal execution. We realize not every providers are trained even though they might miss the initial training during the site initiation turnover, especially during the night shifts. So, our CAM team really put a lot of effort above and beyond and go late hours to train the night shifts, and that's not 100% done yet. So those are some examples, probably the top drivers that we've seen how our tenured accounts growing, and we see the account -- these drivers is not applicable just to tenured accounts, but all our accounts. Brandon Vazquez: Okay. Great. And then as a follow-up to that, I think, Jane, you were just kind of alluding to this, but you made an interesting comment on the prepared remarks that only 30% of accounts or in your current accounts, you're only 30% adopted rather. Is going further into your current accounts driven a lot in putting these protocols? And then I think like you said, going into new wings. Like how do you do that? What is the friction point of getting into these new wings? And then one unrelated follow-up, if I could just throw in there. Late last week, I think you guys got a new 510(k) clearance on the headcap. Any comments on the importance of that clearance? Xingjuan Chao: Yes. I mean, in terms of going to departmental expansion and protocolization, a majority of it is really execution. I think, if we think about what are the potential barriers is both the resource on our end as well as often the resource on the -- or the priority on the hospital end. And sometimes rolling out a new protocol is beyond the capacity of the nursing team, or it's currently they have other priority. For instance, they are updating their Epic system. So those are some practical barriers we run into, but we believe that over time, because of the strong guideline recommendation and this clinical value and evidence will continue to generate, we should overcome those barriers. In terms of the 510(k) headcap, I think you are referring to the neonatal and headcap. The main clearance we have there compared to the previous neonate headcap is that the previous version, we have the label of approved for all ages. And during our pilot, we learned that our physician and nurses would like the FDA clearance to be even more specific that it is cleared for preterm as well as term neonate because they are very protective of this vulnerable population. So, our current latest headcap is cleared for both preterm as well as term the neonatal population. So, this is actually a great manifestation, example of our strategy. As we do pilot, we actually learned things that we didn't anticipate as we rolled out the product. So, we see this recently approved or cleared headcap would be the product that will be ready for full commercialization as we receive the clearance of neonatal clarity. Operator: Your next question comes from the line of Josh Jennings from TD Cowen. Joshua Jennings: Congratulations on another strong quarter. I think, Jane, you've called out that Ceribell point-of-care EEG is kind of penetrated about 10% of U.S. acute care hospitals. The word of mouth according to our checks from the customer base is getting louder, buzz is getting stronger, the library of clinical evidence and the cost-effective data is growing. I was hoping to just maybe lead that intro into a question of, okay, can you add some quantitative or qualitative color just on where the new customer account pipeline or funnel sits today relative to the beginning of the year? And just in terms of giving us up thinking about the potential for account growth in 2026? Scott Blumberg: Yes, Josh, the numbers that are reflected in our active account base is launched accounts, which is when the customer is fully trained and live. Of course, we measure before that, we measure when we receive a purchase order, we measure the various stages of engagement that happen that lead to a purchase order. Without getting quantitative on it, I can tell you that, that number -- the funnel is growing, and it's growing as a direct reflection of both of the investments we've made in our commercial org over the past year, but also, I believe, the appreciation of the need for this technology that's growing by the day. Joshua Jennings: And I just was hoping to better understand how Ceribell is positioned with IDNs or health care systems. And has the company benefited from some IDNs kind of making best practices decisions or standard of care within their network? Or is that opportunity in front of Ceribell? Maybe just help us think about how you're positioned through the number of IDNs that are in play in the United States. Xingjuan Chao: Thank you, Josh. Yes, we definitely have seen that the partnership with hospital systems has been a strong growth engine from previous years, including the current one. And we see potentially even bigger opportunity ahead of us. I think, historically, especially a few years back when we were much smaller, we often do not engage IDN at the headquarter level because we were so small. We were more engaging at the individual hospital level as we're becoming available in 600-plus hospitals in the U.S. We are building our hospital system sales team and also the entire sales team -- train our entire sales team to not only thinking about individual hospital but really thinking about hospital system level sales. So that requires, we call it bottom-up and top-down sales coordination. We more just started doing this systematically this year. So, we anticipate to continue executing and capture the opportunity here, become even better partner for our customers. Operator: Your next question comes from the line of Bill Plovanic from Canaccord Genuity. William Plovanic: And you did a good job on the pronunciation. So, start out with first, just I'm looking at the guidance, and it's pretty broad. Low end is about, I think, 23% year-over-year, high end is 25% or 35% year-over-year. Multiple questions here. First, what drives the lower end versus the higher end of that? I mean it's a pretty broad guidance range considering you're coming into the end of the year. I'm going to start with that and then multiple other. Scott Blumberg: Yes. Bill, I think our philosophy on guidance remains unchanged. We appreciate the importance, especially as a company that's only been public for a year to put forth numbers that we feel very strongly we're able to achieve, and that colors the way we think about guidance. So, when there's things that we know or believe like Q4 seasonality, for example, being stronger than Q3, as we think about the bottom of the range, we think about being extremely conservative and essentially derisking all of the unknowns. So. I think it's -- I would read into the range really as risk calibration and us putting forth numbers that we have a very high degree of confidence in. William Plovanic: Okay. And then I just want to -- post IPO, one of the things you did was you took a lot of that and you invest in the sales force. Just any update on where you are with the TMs and the CAMs today? And then, you saw an uptick, I think, basically 31 net new active accounts sequentially. That's the highest number we've seen in a very long time. It's definitely ticking up. Just is this a function of the new reps that were brought on? Kind of what are the drivers of that this quarter? Scott Blumberg: As far as the commercial infrastructure goes, we haven't made any fundamental changes to our strategy since last quarter. We still have roughly the same number of territories planned in the mid-50s right now on the TM side. We have and we'll continue to invest in the CAM side of the business because that side of the org grows roughly in line with the growth of the account base. So, we're fully staffed on that side, but that will continue to grow. I think, we also are looking opportunistically at areas to invest to accelerate further growth. And James answer to a prior question, I think, is one area where we're looking very closely, which is IDN level systems. As far as the account adds go, we're obviously very pleased with the results this quarter. I know, there's a lot of kind of emotional difference between the 29 we did last quarter, a couple of quarters ago 31. But I'd consider that largely in the kind of range of expected outcomes here, and we fully expected that the hires we make start to become productive as we get into 2826 here. William Plovanic: Okay. And then I think Robbie asked the question, you've been growing revenue pretty strong. We haven't seen leverage in the P&L. And I think one of the questions we get from investors is, is that something we're like -- I know you haven't given guidance yet, but is there a reason we won't start seeing it sometime in the next year? Scott Blumberg: The only reason you would expect -- I would expect us not to see, it is if we make a strategic decision because we see a profound growth opportunity to really invest in the OpEx to capture that growth. And if and when we make that decision, we'll communicate that clearly to the Street so that it's not a surprise. William Plovanic: Okay. And then any update just on competition? The other question we get a lot of is just competition. What are you seeing in the marketplace? Are you losing any more accounts today or winning any more versus where you were 6 or 12 months ago? And then any update on the IP litigation? What are the next steps? Xingjuan Chao: Yes. On the competition front, I would say in Q1, Q2, we saw a significant increase of the competition activity, as we mentioned before. In Q3, I would say, there's nothing substantial change. We see continued growth of competition activities there. However, I would say our performance in 2025 speaks for itself. We have beat and raised our guidance every single quarter, and that shows that the competition is not meaningfully impact our performance. And the reason we are achieving this is not only leveraging the superiority of our product, clinical evidence and cybersecurity, we are also learning a lot about competition and put strategy and plan in execution to address this. And in terms of ITC litigation, as investors or you probably see ITC have outlined the milestones before the shutdown. And at the time, the anticipated decision is September next year and the final ruling of January 2027. With the government shutdown, we anticipate some level of delay there, then we also expect that ITC would update the time line as soon as the government reopens. William Plovanic: Okay. And then just last for me. I think you mentioned the shift to Vietnam with the manufacturing. We'll start to see the impact in Q4. I think you mentioned that will drive mid-80s gross margin. Is 100% of that into the quarter? Or is it kind of we'll see margins ramp down this year in Q4, and then hit that mid-80s for next year? How do we think about kind of cadence there? Your line is live. Scott Blumberg: Hi. This So Q4, we'll be relying for the first part of the quarter on pre-tariff inventory, and then on for the remainder of the quarter only on China inventory Because it's essentially inventory that was acquired before we had Vietnam up and running. So, Vietnam doesn't impact this quarter. As we move into next year, what you'll see is China inventory that we've acquired at a higher tariff rate mixed in with Vietnam inventory at a lower tariff rate currently and that should reflect itself in that continuation of the mid-80% gross margin into next year. Operator: Your next question comes from the line of Jeffrey Cohen from Ladenburg Thalmann. Jeffrey Cohen: First, I wondered if you could dive into the VA channel a bit more and talk about some of the current accounts and some of the expanded accounts and what you may expect, how that implies into fourth quarter and next year as far as the growth specific to VA? Xingjuan Chao: Yes. So, we do not -- even though we cannot and do not disclose the specific numbers on VA or specific hospital system, but I'm really excited and can talk more about what we can share about VA. So, VA has a very rigorous process in terms of piloting first and then systematically roll out at different phases. So, where we are now is the first few pilot has been very successful. Both the physicians and administrators at the VA clearly not only saw and also experience the value our system delivers clinically as well as financially. So, we are now confirmed to roll out the first larger cohort of VA accounts in the next couple of quarters. And so this will be one of the largest top-down rollouts we've ever done at in the Ceribell history. So that's what we are very excited about. It's not only a big win for the company, but also for the veterans who we serve, who are at the risk of seizures. Jeffrey Cohen: Okay. Got it. And then as a follow-up, I know you spoke previously about the headcap and neonatals, but you made a comment about the utilization of hardware without clarity that was happening in Q3. Could you just expand upon that a little bit for us, please? Xingjuan Chao: Yes. We -- it's premature to probably talk about utilization at the account level for neonate at this phase yet, because the pilot we focus on is really on the population discussion, confirming signal quality, confirming ease of use. Because of the nature of that, it does not perfectly reflect what would be the actual commercial clinical usage. However, what we can report is it has been very well received. We already have certain case studies that the physicians and nurses that they significantly help the patient, either detecting seizure early or avoid unnecessary medication for the patient, which is critical for patients' outcome. So, we are excited to potentially bring the entire product from hardware with Clarity to market in 2026. Operator: Thank you, Geoff. Perfect. Your final question, it comes from the line of Jayson Bedford from Raymond James. Unknown Analyst: This is [ Elaine ] on for Jason. So, by our math, you grew utilization year-over-year despite the tough comp from stocking in 3Q '24. So, I was just wondering how much would utilization have grown, excluding the stocking impact? And also, did you see the usual seasonality impact this quarter as well? Scott Blumberg: The quarter year-over-year growth comparison would have looked much more similar to the year-over-year growth we saw in Q1 and Q2 had there not been the purchases, the additional purchases in Q3. As far as seasonality goes, yes, of course, we'll know for sure after we get through Q4. But if you look kind of sequentially, Q1 was really strong and Q2 and Q3 on a sequential basis were less so. And that's been exactly consistent with what we've seen in the last 2 years. We're still obviously only a few years into this commercial journey, but this year has not surprised us in any way in terms of the quarter-to-quarter trends. Unknown Analyst: And for my follow-up, I was wondering, could you share more -- sorry, more color on the utilization trends, are certain departments driving the increased utilization? Are you seeing more in the ICU or the ED, for instance? And I know you talked a little bit about the use cases. Xingjuan Chao: Yes. Overall, we actually see a relatively broad growth driver. So, from departmental expansion to protocolization and even beyond the ICU and ED to the floor to the step-down units. And particularly, we do see a bit of even stronger growth in the emergency department compared to the ICU because EDs are in general, even less penetrated. So that's overall, but we don't see a single driver that accounts for majority of the growth. Operator: That concludes the question-and-answer session. I'd now like to turn the call back over to Jane Chao for closing remarks. Xingjuan Chao: Thank you. Well, thank you, everyone, for your attention and for joining the call. Again, we are very excited and proud of what we have accomplished for Q3 and look forward to sharing our performance of next quarter and quarters to come. Thank you. Operator: This concludes the meeting. You may now disconnect.
Craig Marshall: Welcome, everyone, to BP's Third Quarter 2025 Results Call, which today we're hosting in Abu Dhabi. We'll be focusing today's call on the third quarter results and the contents of the video that I hope many of you will have seen by now. But before we move to Q&A, let me firsthand over to Murray for a few brief opening remarks. Murray? Murray Auchincloss: Thanks, Craig, and thanks, everyone, for joining the call today. We're now 3 quarters into our 12-quarter plan and have delivered another strong quarter of operational performance and strategic progress. Earnings and cash flow generation was good with underlying pretax earnings of $5.3 billion and underlying net income of $2.2 billion. And with $7.8 billion of operating cash flow delivered this quarter, we are making good progress in delivering on our growth target for adjusted free cash flow growth of 20% CAGR over '25 to '27. Our operations teams are doing a great job in running the assets well with upstream production increasing by around 3% quarter-on-quarter, supported by upstream plant reliability at around 97%, leading to upgraded full-year underlying production guidance and refining availability also close to 97%, the best quarter in 20 years for the current portfolio. Looking ahead, we're also making strong strategic progress. We've started up 6 new oil and gas major projects in 2025, 4 of which were ahead of schedule. And we've had 12 exploration discoveries so far this year, including Bumerangue in Brazil, where the latest analysis and results gives us even further confidence. This performance is also showing up in the downstream as well. Underlying earnings in the first 9 months were around 40% higher than the same period in 2024. In customers, we delivered our highest 3Q on record and refining captured a better margin environment. We're making good progress on derisking our $20 billion divestment proceeds target, today upgrading our proceeds guidance underpinned by proceeds completed and announced this year that are expected to be around $5 billion. We're staying disciplined with our capital investment with organic CapEx on track to be below $14 billion. And we remain confident in the momentum we are building in support of the delivery of the cost and net debt targets we have laid out. In summary, while there remains a lot of volatility, we are staying focused on what we control, underpinned by a laser-like focus on performance across the company. We have world-class assets and capability with operations delivering strongly. We have a deep resource base and are building high-quality options for growth in the future, the focus of our ongoing portfolio review. We're continuing our momentum to drive -- in our drive to reduce costs. we're making good progress in growing cash flow and returns and our plans to strengthen the balance sheet. And of course, we have more to do. All of this is in service of growing shareholder value and returns. With that, I'll hand over to Craig to take us through the Q&A. Craig Marshall: [Operator Instructions] So I think we'll start there with taking the first question from Al Syme at Citi. Alastair Syme: Murray, I got a question on Bumerangue. I'm really intrigued by the decision rather to publish the map on Slide 9. Clearly, there's a lot of market interest in the discovery, but at the same time, it's quite early days to be publishing a map. Can you talk about the confidence in that geological map based on the data you've got? And I'm also intrigued to know whether that sort of image looks any different to the predrill assessment that you had in the field. Murray Auchincloss: Yes. Great, Al. Thanks very much. Yes, we're feeling pretty good about Bumerangue right now. As we disclosed recently, 1,000-meter column, 100 meters at the bottom of oil and 900 meters of rich gas condensate. We've evaluated about 2/3 of the samples in the labs, and we continue to evaluate them. The map we've produced is off the predrill seismic. There's a lot of technology that's changed over time, and the pre-drill and post-drill are pretty close to each other. The guys were able to image the top and bottom of the reservoir within a couple of feet based on the quality of the seismic we had. So we're feeling pretty good about it. It's a pretty good aerial view of it, 30 -- at least 300 square kilometers, at least 1,000 meters of column height, and we continue with the lab sampling. We will update the market in due course once we understand the gas oil ratios fully and once we understand the volumes in place. And we've secured a rig to drill the next appraisal well and do a flow test on it as well, which we expect to happen once the equipment is available near the end of next year. So good news on Bumerangue. Thanks for the question. Craig Marshall: We'll take the next question from Alejandro at Santander. Alejandro Vigil: The question is about Castrol, the process, the strategic review of this asset. If you can give us some color about how the process is going. Murray Auchincloss: Great. Thanks, Alejandro. I'll take that one again. First, just a small note of congratulations to Emma and Michelle, who run the business. It's 9 quarters in a row of increase in earnings, very strong performance out of that business, and it's going very well. It's a commercial process, so I won't talk much about it other than to say there's strong interest. We are moving at pace, and we'll update you in due course. You'll remember that any proceeds that come from the strategic review will be dedicated to the balance sheet. But strong interest. We're moving at pace, and we'll update the market when we have something to say to the market directly about it. Craig Marshall: We're going to take the next question from Irene Himona at Bernstein. Irene Himona: Congratulations on the numbers. Murray, can you give us an indication of an approximate timing for making concrete announcements to the market on the further portfolio simplification and restructuring, which you referred to in your comments, please? Murray Auchincloss: Great. Thanks, Irene. Thanks for your kind words. On the portfolio review, Albert New Chair is on board now. We're starting to work with him on thinking about the portfolio. Of course, this comes about because we've had such tremendous success inside exploration. When we set out our plans in February, we didn't imagine that we'd have 12 exploration discoveries in a year. We certainly didn't imagine we'd have a discovery like Brazil as well. So that's all good news. We, of course, as a corporation, are very focused on making sure that we drive for value and returns and allocating capital to the highest quality opportunities. And that's what we're commencing now. We plan to update the market as we go along. So if you think about what happened in the third quarter, you saw that we made a sanction decision on Tiber in the Gulf of America, which we're very happy with. You saw that we decided to divest the Culzean field in the North Sea. We feel that it would have more value in other people's hands. And you saw that we stopped the Rotterdam biofuels refinery. It just didn't -- it didn't compete on a returns basis in our portfolio. So we'll update as we go along, Irene, and you should expect us just to update us as we go along through time and the decisions that we make. Thanks for your question, Irene. Craig Marshall: We're going to take next question from Lydia Rainforth at Barclays. Lydia Rainforth: So can I just come back to Bumerangue, if I could. Just on -- what I'm getting back is a lot of, well, it might not be 300 square kilometers, you may only be able to access half of that, the CO2 content. And like every is trying to talk it down. So just to take a step back and just on your earlier answer, Murray, the idea of the commerciality, that was really the main message that you wanted to share with us some update last week. And then secondly, just a very different topic on AI and the cost base. We've seen lots of examples here in APAC around just agentic AI, what we've seen there. Can you just talk us through what -- how you think the deployment is going within BP? And you talked about wanting to reduce the complexity of BP, improve the simplicity. So can you just walk us through where you think you are on that journey? Murray Auchincloss: Yes. Thanks, Lydia. Just on Bumerangue, I think the principal thing to focus on is that there's an awful lot of oil and condensate in the column. It's a large column. We've updated it from 500 meters to 1,000 meters based on the logs and the strong response we've got inside the logs and the samples. We do have the 100 meters of oil. We do have the 900 meters of rich gas condensate. That makes the CO2 manageable, although you might need a little bit more money for metallurgy. Obviously, you're going to get an awful lot better flow with CO2 in an oil condensate column. So we feel comfortable. We continue to think of it as the largest discovery in 25 years. We've obviously secured a rig to go appraise it and test it, and we feel that we're increasing the quality of this with the results that we're seeing out of the lab moving forward. And we'll, of course, update you on gas oil ratios and volumes when we're ready with it, Lydia. I think on AI, I do think we're making decent progress. A couple of quarters ago, I had Emeka talking to the sell side about what we're doing in AI. And all of you know that we've partnered with Palantir more than a decade ago inside the upstream to really get going on structuring our data and experimenting first with linear programming and then moving into AI more recently as that technology has emerged. I think the first thing to say is we feel well progressed on the data foundations, which is critical to making AI work. We've said that we'll have a unified data platform, not just across the upstream, but across the downstream, across trading, across finance, where working with Palantir and Databricks, we'll have an entire unified data structure sometime around the middle of next year that then allows us to use AI and the LLMs against all the data we have. That's quite exciting that we'll be in that position. It's all cloud-based, so accessible everywhere. And I think that will make us distinctive for having that type of data structure on topology. The actual examples of AI that we've got going around the company, I feel good about as well. Last quarter, I talked to you about kit detection, where the teams have worked with the LLMs to be able to predict kits ahead of meeting them while drilling in wells like far south in the Gulf of America, and we're at about 98% detection on kits. As well, you saw in these results, production is high. We've upgraded our production guidance for the year. Why? Because we're at nearly 97% availability in the upstream. That's the AI helping us predict faults before they occur, repair them before they occur along with all the investment in the hydrocarbon kit we've done. That 97% is a record across since merger time. So outstanding result. And we're also seeing that inside the wells. Wells are failing at a far less frequency than they were as the AI helps us manage pressure depletion inside our well stock. Another great example is well planning. The AI is enabling us to knock down well planning by 90% as it catalogs all the data, provide suggestions to the experts, and that's significantly increasing the speed with which we can plan wells. not only safely, but more efficiently. And then it's not just contained to the upstream. We're working very hard with Palantir and Databricks to work our way through refining in a few of our refineries. And in the customers business, there's an interesting example of an AI agent that's helping us in our service stations in Germany. We've trialed it with 20 service stations in Germany. It's been designed to help us manage our stock levels there to make sure that food isn't wasted, that we follow customer preferences for what they like to purchase and what they don't like to purchase. And that after 3 months in those 20 locations, they've knocked down waste by 45%. So we can see tremendous examples of improved uptime, improved performance, better capital efficiency through AI. And we're very excited about the opportunity this has as our data foundations get firmly in place. Thanks for the question, Lydia. Craig Marshall: We're going to move to the U.S. to take the next question from Doug Leggate at Wolfe. Douglas George Blyth Leggate: Murray, I guess I've got a couple of parts to this related to your production guidance long term. You're already over 2.3. BPX is knocking it out of the park, frankly, versus its more than 600 end-of-decade kind of guidance. And now you've got multiple discoveries and potentially an early production system from Bumerangue. So my question is, how do you see the risk to your production guidance? And maybe a kind of part B to that, would Bumerangue early production system be included in the CapEx guidance that you've given us over the current plan as well? Murray Auchincloss: Yes. Thanks, Doug. I'll hesitate to give a ton of guidance forward. We've set out our plans to 2027 as principal guidance, and then we gave an indicator of volumes at the end of the decade as well. I think it's probably premature until we work our way through more of the portfolio review to understand where we'll be headed. We do have choices on short-term versus long-term. So of course, we can pivot more capital into BPX and drive-up production near term or we can pivot more to things like the Paleogene and Brazil to drive longer-term resource production. I think if I step back from it, I think the thing I'd say is that I feel we now have the potential to grow long-term organic oil volumes for long duration. And I'm not sure I've been able to say that over the past 25 years with BP that we've been in a resource position like that. It's a nice problem to have. And what we're tightly, tightly focused on is staying within our capital frame and deciding what the right thing is to do to grow shareholder returns and value on behalf of the shareholders. So I think where I'd wrap that question is I'm very pleased to have been able to improve the guidance for 2025 after only 3 quarters, tremendous performance from the teams, as I said earlier. We'll update you on 2026 in February with what our viewpoint is of production then. And I would say we have more potential to grow, especially in oil now. And I feel we're in a better place than we've been in my career with BP, which is a nice thing to have. I hope that helps. Craig Marshall: We'll take the next question from Lucas Herrmann at BNP. Lucas Herrmann: A couple of -- well, a couple, if I might. Just going back or staying with BPX, Murray. Just trying to understand the CapEx profile. I mean, I appreciate the growth is very good. But the rig count kind of held. And I guess my understanding was always that as you came to complete on the processing facilities, bingo, so on and so forth, that we see a step down in spend, which doesn't really seem as though it's happening. So some explanation as to the developments there. And then if I can, just a simple one for Kate on the pension fund, if that's ever simple. Can you just talk around the buy-in that you've arranged with Legal & General and why you -- why sort of stopped where it has at this point? Should we be expecting you to sell down or to allow Legal & General to buy in a greater proportion of the U.K. fund into the future? Murray Auchincloss: Thanks, Lucas. I'll let Kate talk, and then I'll come back on BPX. Katherine Thomson: Yes. Lucas, thanks for the question. So yes, I mean, it's been a conversation inside the Pension Trustee Board for a while in terms of derisking. You can see a number of other companies have stepped into this in similar ways, some to a bigger degree than we have. I think the transaction that's been executed is a good one to date. But of course, it's not our decision as a sponsor as a company. It rests fully with the Pension Trustee Board. And I think they will continue to evaluate how they feel with regard to further derisking as we go through the coming months. But I have nothing further to be able to say in terms of guidance on that at the moment, Lucas. Murray Auchincloss: Great. Thanks, Kate. On BPX, Lucas, the way that we think about BPX is about $2.5 billion a year into it. Of course, we have the opportunity to flex that up and down. So this year, we'll spend around $2.5 billion in BPX. And as guidance, I think we guided around $2.5 billion through the next couple of years as well as we talked about the shape out to over 650 kbd in 2030. I think a few things I'd say about BPX. The productivity improvement we've seen from the team is very high. They've had 30% productivity improvement in completions and 15% in drilling over the past 12 months. They're now at top quartile in each of the basins we operate from a drilling days per 10,000 and they're at top quartile on NPV per dollar spent, which are fantastic metrics to continue to push and congratulations to the team on doing that. Another little advertisement for them would be they've drilled the best well in the Haynesville now ever, a 4-mile lateral completed and now producing 80 million standard cubic feet a day, which is a record for the Haynesville. So congrats to the team for doing that. As far as where do we go from here with BPX, we see continuous drilling inside the oil windows. You'll notice quite a large liquid growth 2Q on 2Q, '24 -- that's as we fill up the Permian, and we're doing an awful lot in the Eagle Ford as well. There's strong growth in the Eagle Ford from the infill spacing, the downspacing I've talked about before and from the refracs I've talked about before. So very strong liquids growth across that business. And the natural gas, the drilling and natural gas, we're running 8 rigs across. We'll have a conversation as we head into 2026 about do we keep running at 8 rigs? Do we move it up to 9 rigs inside the gas window? But the productivity improvements are so strong that they've actually drilled 13 wells basically for free this year relative to what our plans were. So I think count on 2.5 until we give you additional guidance. Obviously, more drilling than infrastructure as we finished off the infrastructure -- the major infrastructure program, as you mentioned. And we see the chance for a strong growth moving in BPX moving forward, and we're happy to support the U.S. in growing production. Thanks, Lucas. Craig Marshall: We're going to take the next question from Chris Kuplent at Bank of America. Christopher Kuplent: Trying to stick to the one-question rule, but a wider one. beyond Castrol, Murray, could you maybe let us know where you're at on Gelsenkirchen, on Lightsource? And if I may just ask, you've done the TANAP stake disposal now in BPX. How many of those midstream opportunities do you still see when you look across your portfolio for potentially more noncontrolling interest stakes? Murray Auchincloss: Yes. Great, Chris. Thanks very much. We laid out a program of $20 billion. Pleased to report that we've announced $5 billion now. I think $1.7 billion of proceeds in the door case and obviously, another $3.5 billion to come in the door to help the balance sheet as we complete these transactions as we get to completion and approval. I think what I would say is there's a strong interest in Castrol, and we continue to move forward with that. We'll update you. Same for Gelsenkirchen, strong interest, and we'll update you. And on Lightsource, we started strategic conversations with counterparts, and we're at an earlier stage on that than we are on both Gelsenkirchen and Castrol. So you should expect something that takes a bit longer to disclose on Lightsource. But we're making strong progress on all 3 of those things. And we'll update you as the commercial processes, I don't want to say much more than that. We'll update you when we have news to tell you. I think on the infrastructure stuff, Kate, why don't you take that, please? Katherine Thomson: Yes, Chris. So as we look out in terms of the delivery of the rest of the $20 billion program, we don't see any other significant infrastructure deals in the pipeline. So in terms of how you should think about NCI, the way I would suggest you hold it is it's not going to increase beyond this. And actually, next year, as we redeem the hybrid that we prefinanced, there's about $1.4 billion left of the 2026 maturity that we prefinanced, if you remember, then that will start to bring NCI down. And then should we choose to take advantage of the 25% of the hybrid stack that we could taper under the S&P rules, should we choose to step into that space, then you'd see NCI reduce further. So the way I would suggest you hold it is it's where it is and from here, it will go down. Craig Marshall: We're going to go back to the U.S. taking the next question from Ryan Todd at Piper Sandler. Ryan Todd: Bumerangue is rightfully getting the bulk of the attention right now, but you've had quite a bit of success across the drill bit across the portfolio. Can you talk about what are some of the other discoveries or opportunities this year that have been particularly exciting and maybe in particular, in Namibia, what you've seen so far, how it's comparing to expectations and the timeline of next steps? Murray Auchincloss: Yes. Thanks, Ryan. Let's see. I think maybe -- so we're -- I think we're 12 out of 14 right now, if my math is right, on discoveries. So congrats to the explorers for such a great year. It's probably the best year in our history. Particularly interesting has been the convergence of seismic technology with big -- with new chips from companies like NVIDIA and the emergence of AI. It's allowing us in places like Egypt, Trinidad, Brazil to see below salt much better than we ever have. And I can remember looking at the seismic on Egypt where you could actually see the channels. So there's -- we're seeing a change in technology that has helped exploration this year. I don't want to say it will necessarily do that next year as well, but that's been part of the story of the excellent exploration we've had. I think Trinidad offers up 2 good discoveries for development. Egypt offers up 2 good discoveries for development. Brazil, we've talked about. And if I then move to Namibia, again, we're very excited. That's been done through Azule, our joint venture with Eni. We've had effectively 3 discoveries. The third one, Volans, came this -- in the third quarter. We've got a nice reservoir in Capricornus is the second one, 38 meters, a very high Darcy rock, good oil properties. And then we have Volans discovery, 28 meters if memory serves, rich gas condensate, only 14 kilometers away from Capricornus. So Namibia is looking like a very good block. We continue to test the samples in the lab through the operator of the exploration phase Rhino, and we're quite optimistic about it. I think the Namibian Energy Minister called it the best block in the nation. So we're really pleased with that and looking forward to further appraisal and an update from the operator, Rhino, in due course about how we take the development of this block moving forward. But thanks for recognizing it. A very good year for exploration, and we're proud of the teams for what they've delivered. Thanks, Ryan. Craig Marshall: We'll stay in the U.S. and take the next question from Paul Cheng at Scotia. Paul Cheng: Murray, I want to go back into exploration. You guys definitely have a very good year. In addition to the -- maybe that combining AI and seismic to allow you to be able to see through the rock better. Is there any processes or the personnel changes that can lead to this great success? And how repeatable are they? From that standpoint, going forward, if you do believe that you have better success rate, should you deploy more capital into the exploration going forward to be able to use it as maybe a larger source of replacing your resource going forward? Murray Auchincloss: Thanks, Paul. I guess there are a few things happening, first of all, inside exploration. We have a great experienced team who have been high graded over time, and they've built on the track record of their predecessors and built up a very good base of knowledge around the world. So we have great people with great deep knowledge, I would say, of the basins in which we operate. I think the second thing is technology is changing. The NVIDIA chips that we're now using inside our supercomputing are just incredibly fast and allow incredible iterations of theories. I'm kind of dumbing it down, all the geologists on the call, please forgive me for dumbing this down. But it enables much faster interpretation ideas, thinking about how one can think about the subsurface. And that, of course, is converged with wide as seismic, full waveform inversion algorithms. So you've got this real thing of very good, experienced people with incredible horsepower in compute, much better than anything in history, along with dramatic technology steps from the service providers. And then I think the magic we have right now is the team is very engaged on the digital side and very engaged with using the technology and the AI to test new theories and see what else is there. So that's a little bit about the magic. Is it repeatable? I'm never going to say that with exploration. My father was a geologist, and I know you curse yourself if you say that. So I don't think I'd necessarily bank on that. But we've certainly had a good year. We have some very good prospects next year. And as far as increasing capital in the space, the lesson for life from us is always quality through choice. Create as many opportunities you can, high grade down to the very best ones, and that gives you a higher chance of success than you otherwise would. So that, to me, is what's so important is you keep quality through choice. I think we're spending around $600 million a year right now on exploration. I would not want to push that up despite the success because it forces quality. So thanks for the question. Congrats to the explorers for a great year, and we just need to remain capitally disciplined and make sure that we're pursuing only the very best opportunities. Thanks, Paul. Craig Marshall: Thank you, Paul. We will go to Michele at Goldman Sachs next. Michele Della Vigna: Congratulations again on the strong delivery this quarter. I wanted to come back to the CapEx budget. So you reiterated the guidance for this year, and you've got a relatively wide range for '26, '27 of 13% to 15%. I was wondering, in an uncertain macro environment, if you were forced or decided to go to the low end of that range, where would you find the levers of flexibility to lower the budget effectively from the 14.5% of this year? I find it's an interesting time to start to think about some of those moving parts. Murray Auchincloss: Kate, why don't you take that one? Katherine Thomson: Yes, I will. Thank you. Michele, yes, so we have got a decent range around the frame for the next couple of years. So that gives us plenty of space to maneuver, I think, in different price environments. As you look at this year, we've guided to around 14.5%. If you take out of that the final bullet on our BP Bioenergy and organic, then you're actually sub 14% on an organic basis. If prices were to dip, we've got plenty of opportunity to take ourselves down to the bottom of that frame. And we'll continue to be very careful as we deploy every dollar if prices are strong and we choose that we actually want to drift up towards the top of that frame. I don't see any need for us to let go of the tight discipline that Murray and I have put around capital. I think it forces the right conversations in terms of the value and returns focuses that we're pushing into every investment decision that we are now stepping through. And you can -- you've heard us talk about this on previous calls that, that discipline and that approach to our capital investment is so critical to us. As we seek to drive improvement in the operating cash flow going forward and making sure that we're choosing the very, very best of the opportunities at our disposal. We've got probably one of the richest sources of opportunities to consider that we've had for a very long time right now, which is a great position to be in. And I'm very comfortable with the range and the flexibility that we've got, and we've talked before where we would go if we needed to take ourselves down to the bottom of that range, and there's plenty of opportunities around some of the onshore drilling, which we could choose to slow down. There's a little bit around the exploration playing at the edges, depending on how much of our rigs are committed over the next 12 months. But we have space and we have flexibility within that 13 to 15. Craig Marshall: We're going to take the next question from Henry Tarr at Berenberg. Henry Tarr: I wanted to ask about Iraq. Can you give us any more details on the sort of economics for BP of the contract in Kirkuk? And then obviously, others have entered into the country and there's a sort of large program planned. How material from a macro perspective, do you think the overall impact could be for production growth in Iraq if we look out sort of 3 to 5 years? Murray Auchincloss: Thanks, Henry. I have to be careful on economics. The nation has not yet published the production sharing agreement. And until they do that, it's very difficult for me to say anything under the restrictions that we have. What I will say is progress since I last talked to you. We've done the initial production test and agreed that with the nation. That's 328 kbd of black oil is being produced. And the teams on the ground now, 45 people on the ground in Kirkuk, starting to work on well work jobs, acid jobs, compressor rewheels, getting procurement contracts in place, et cetera. And we look forward to helping the nation ramp up that field over time. I think the stuff that I can say on the terms are -- they're obviously better than the first-round terms. We're on round 8, and each round has been incremental is my understanding across time based on what's been published publicly. And we do have price upside in this one. We do have the ability to take price on gas as well, which has not happened in previous rounds. We have exploration rights on the acreage as well, both surrounding and deeper. So it's a much better enhanced contract than we saw in the Phase 1 terms of Rumaila, kind of, gosh, how many years on is that now, almost 20 years on. So that's probably all I can say about the commercial terms of Kirkuk, but we're very happy with it. And in due course, when we're allowed, we'll happily share the details. with the marketplace. I think on the overall capacity for Iraq, there is a lot of oil there. And obviously, we've seen a few other deals being signed recently. And I guess my response is it's what the world needs. We continue to see oil demand moving forward strongly. We see strong demand for that oil. We perceive that some of the non-OPEC Plus is pretty much tapped out after February, March, April next year, and then we see flat to declining production outside of OPEC Plus. So it's going to be dependent on places like Iraq to help fill the demand that's coming forward. So I think the world is going to need it, but it wouldn't be right for me to talk into Iraq's production capacity. That's something that the nation will have to talk about as opposed to myself. Hope that helps, Henry. Craig Marshall: We're going to take the next question from Kim Fustier at HSBC. Kim Fustier: I wanted to ask about the Venture Global case. You've won the LNG arbitration case unlike one of your peers. Why do you think your case was successful? And when do you think you might receive the $1 billion of damages that you've asked for? Murray Auchincloss: Yes, Kim, I'm obviously not going to comment on any other cases. I'm not familiar with them, and it would be inappropriate for me to comment on that. As far as our case goes, we're very pleased with the result. Congratulations to our lawyers and our traders for having achieved this. The next phase on damages is being organized with the arbitration panel. A date has not yet been set. I'm sure there will be an update when that occurs. And as far as the damages themselves, that's not a number that is our number. That's -- we don't recognize that number. So all I'd say is we're pleased. We look forward to the next stage. We'll update you when we're aware of when that's happening. And I'm very pleased with the result from the arbitration. Congrats to the team. Craig Marshall: We're going to go to Josh Stone at UBS, please. Joshua Eliot Stone: A question for Kate on the balance sheet. I'm curious as to how much attention you're paying to your gearing ratio on either a net debt to capital or equity basis because the reason I ask is as you get more of these cash proceeds in from asset sales, you will -- you're effectively selling parts of BP, your asset base will be coming lower and that's also before the impact of impairments. So maybe just talk about how you're thinking about these ratios because I appreciate you've got like an absolute net debt target, but I think the gearing ratio is also relevant here. So maybe some comments on that would be helpful. Katherine Thomson: Yes. Josh, thank you for the question. Let me step through how we think about our balance sheet because I think if you just bear with me, and I'll take you through my thinking because I think it's quite important context. So financial resilience is really important to us as an organization as we move forward. It allows us to execute on the opportunities that we have as they present themselves. And it's comprised of a number of things. And the first thing that everyone can measure us against is net debt, and we've now put a target against a material reduction in net debt by the end of 2027, and we've put a $14 billion to $18 billion, which we will deliver. If you think about where we stand today at '26, that would be a $10 billion reduction in terms of the net debt stack. But of course, I think if you remember some of the slides that I used to talk about balance sheet and financial resilience at the Capital Markets Day in February, I was trying to be pretty transparent that we understand our total liabilities and the drain on our operating cash flow, those type of commitments is not just around debt. If I think about some of the other big components, we have over $1 billion a year going out on Deepwater Horizon. So another 2 of those will go before the end of 2027. So that's $2.2 billion. We've got a level of prefinancing of the '26 hybrid I referred to earlier, that's $1.4 billion. So even if we do nothing else, where we stand right now, our liability stack will reduce over the next 2 and a bit years by $13 billion to $14 billion. And that's how we think about it as opposed to contemplating gearing. We haven't got a gearing target. We've got a target on net debt. That's the first priority. That's what we will deliver. But I hope you can hear from my language that we think about the totality of our liabilities, and we're cognizant on the total cost of all of those. Craig Marshall: We'll take the next question from Jeff in TPH, please, back over in the U.S. Jeoffrey Lambujon: We were hoping to also ask about the structural cost improvements, which look to be progressing quite well, especially based on the supplement disclosure, the roughly $400 million improvement quarter-on-quarter there. But I'll actually gear my loan question here to follow up on BPX, if you could dig into basin-specific plans a bit more and maybe give us a sense for how you plan to pace activity adds in the Haynesville specifically over the next 12 to 18 months or so and maybe how the Eagle Ford may play a role, if at all, as part of that. Murray Auchincloss: Yes. Great. Thanks, Jeff. Thanks for the kind words on cost progress. I'm sure Kate would like to update somebody if they want to ask a question on that one. As far as BPX, our plans in the Permian as we built out the infrastructure, we, of course, want to keep that full now that we've built that out. So 2 to 3 rigs to continue to keep that full for time. In the Eagle Ford, we continue to be very excited with the downspacing inside the oil window of the Blackhawk and the refrac programs. The downspacing wells are doing better than the motherbore than the original wells simply because fracking technology has moved on so much from when they were drilled a decade ago. And the refracs, similarly, we're seeing much higher production on refracs than we did in the original wells from a decade ago that Petrohawk would have drilled. So those are places that we'll continue to push and push the liquids side over time. And then on the gassier window, of course, we've got the associated gas from the Permian. But equally, we have a fantastic Hawkville gas, which is in the Eagle Ford, and we have fantastic Haynesville positions as well, the core of the core. On the Haynesville itself, we'll follow the infrastructure is the way to think about it. As I said earlier, the teams have been doing a fantastic job on driving capital efficiency inside that basin, setting record after record on production capacity from the wells now up to 80 million a day on this latest 4-mile horizontal. And what we -- through our trading and marketing organization, we've been busy establishing offtake points. So we'll just gradually continue to grow the Haynesville in line with the infrastructure build-out, really infield gathering rather than any main export issues. And we'll be contemplating 2 versus 3 rigs as we head into 2020 -- into the fourth quarter -- into the end of the fourth quarter and into 2026, and we'll update you from there. But tremendous resource, tremendous performance by the team and good gas prices, obviously, as well that we hedge out, and we look forward to growing that part of the business. I hope that helps. Craig Marshall: We're going to go to Alice at Morgan Stanley. Alice, I know you're deputizing for Martijn, who's also here in Abu Dhabi. Over to you, Alice. Unknown Analyst: I have a question about downstream. So you printed a pretty strong results sequentially, but also with a number of moving parts. So of course, there was the successful delivery of the cost reductions, but also supportive macro for refining and then on the other hand, weak trading. So could you please give some insight into the contribution of each of those elements? And then on balance, what could we expect the run rate to look like? Murray Auchincloss: Kate, over to you. Katherine Thomson: Yes. Thank you. Alice, let me try and break out the components of the improvement in the downstream. I would say it's been a 9-month period of really good performance across pretty much all of the business, actually in terms of the way that we've seen the organic improvement coming through, firstly, on the customer side, a number of things. We've seen improvements, I would say, in almost every area of the customer side, whether it's aviation, Castrol is up 21%, I think now year-on-year for the 9 months. We've got stronger performance coming through the tight integration that we've got between fuels and midstream. That's something we've been working really hard on that's coming through. And we've got really good cost reductions. So structural cost reductions delivered for the 9 months so far inside customers is about $0.5 billion. And then the other component of the improvement in the downstream operating cash flow from customers is around the BP Bioenergy. So as you recall, we consolidated that now. So you're seeing an improvement in terms of the consolidated earnings versus just [indiscernible] about $300 million. And then if I look at the product side of it, the refining portfolio is delivering superbly now. We've got refining availability year-to-date at 96.4%. That compares to the 96% that we set ourselves as a target back in February. That's a result of conscious investment and systematic improvement in the maintenance and integrity of our kit. And as a consequence, it's running well. And as the refining margin improves, as it has done in the last quarter, we're able to capture the maximum of that. I would also say that refining have done pretty well on their business improvement program as well in terms of reducing their costs. They've reduced their cost by about $200 million further 9 months. And then finally, perhaps on trading. Trading had a weaker quarter this quarter, but they had a very strong quarter in 2Q compared to others. We were very pleased with that. But as I look at the 9 months year-to-date, trading is pretty much in line with where it was last year. So very comfortable with where trading is. So that's quite a long answer. Hopefully, that's broken it down to enough detail for you to be able to follow the various component parts, Alice. Craig Marshall: We're going to take the next question from Peter Low at Rothschild Redburn. Peter Low: Maybe one just on the Gulf of America. Now that you've taken FID on the Tiber-Guadalupe project, does that open the door to a potential farm down of your Paleogene positions? Or what's your current thinking on the optimum time to do that kind of within the development of those assets? Murray Auchincloss: Yes. Thanks, Peter. Yes, very, very happy to have taken sanction on Tiber. It's obviously the second sanction inside the Paleogene, Kaskida a year ago and now Tiber, 280 kbd boats. We own them 100% with tremendous resource recovery potential sanctioned and potential moving forward. And I was really pleased with the projects team. They were able to knock $3 a barrel off the development cost on Tiber by effectively photocopying what we've done on Kaskida. So build -- design one, build many. So that's all very good. We are in conversations with counterparts about the potential farm down in the Paleogene, and we'll do this for value. That's all that we have in our minds is how do we do this for value. And we want to make sure that it's accretive and that it's in the shareholders' interest to do that. But we continue the conversations -- and like all other divestments, we'll update you when we have something to tell you. Thanks for the question, Peter. Craig Marshall: Thanks, Peter. We'll turn to Mark Wilson at Jefferies. Mark Wilson: I will bring it back to Bumerangue. Again, still got a lot of data you mentioned and that appraisal will take a flow test. The release a few days ago spoke to an early production system. It sounds to me like a flow test there would have to be for a prolonged period of time to test multiple areas of a large column and fully understand the CO2 mix. That also sounds quite costly within a $600 million exploration budget if that includes appraisal. So first, I'd like to ask if I'm visualizing that work scope correct for, say, 2027 in terms of what flow testing is needed? And would you appraise that at 100%? Or would we expect overall exploration cost to go higher to accommodate the Bumerangue appraisal? Murray Auchincloss: Yes. Great question. It's a pretty good reservoir. So we think the flow test, where we're drilling the second appraisal well will give us a pretty strong indication of what the rest of the reservoir will perform like. We, of course, could be surprised as we go through that. But given the strength of the seismic, what we're seeing on the logs, we think that is the case. As far as -- so we'll do that somewhere around 4Q '26, early 2027. And we do have a team working in early production scheme. Of course, it will depend on how the flow test goes. The flow test is really focused on productivity of the wells, to be honest, and how many wells we're going to need to drill. That's the primary focus that we'll have on that as we've done all the sampling in the sidewall core already from the initial appraisal well. So it's mainly about how many wells we need to produce the reservoir over time. As far as timing of partnership, that's something in time, we will bring in a partner for sure. You probably don't want to do it until you're through the appraisal well and the flow test because that will have an awful lot more information that's derisked. But that's, of course, a decision that we'll think about with the Board as we move forward. And the exploration, I'm not quoting an exploration number, including appraisal at this stage. We're somewhere around $500 million or $600 million on exploration. We're drilling about 15 wells a year right now, and we'll update you as we work our way through this as we enter '26 and '27. But we will stay inside that $13 billion to $15 billion capital frame that Kate talked about. That's very important. So I hope that helps, Mark. Craig Marshall: We're going to go to Bertrand at Kepler next, please. Bertrand Hodee: Yes. Coming back on the Venture Global arbitration. Murray, you've just mentioned that the $1 billion plus in damages that were in the press was not your numbers. Can you elaborate a bit? Or are you seeking a higher number? Murray Auchincloss: Bertrand, thank you for the question. Look, this is -- you're quoting a number that was in a press release from Venture Global. We have not disclosed anything to the public markets around our viewpoint on this. And as it's a commercial process, I cannot disclose anything because it could impact the arbitration process, and I'm not going to do that. So I'm afraid I'm just going to have to say that, that was their number, not ours. And in due course, we'll file our claims with the arbitration panel. And when the arbitration panel decides, they could make their views public. But I have to be very careful in the process, and I can't talk about anything commercially. Sorry, Bertrand. Craig Marshall: We're going to move to the U.S. again, Jason Gabelman at TD Cowen. Jason Gabelman: I wanted to ask just on the equity affiliate portion, given you have quite a few of them at this point. And as you think about what the overall net contribution of those affiliates to your cash flow is, I'm wondering if that's changed at all given the JERA Nex BP joint venture and Beacon Wind within that joint venture being canceled and perhaps less cash infusions into that joint venture, but conversely, the success at Azule with the Namibia explorations resulting in perhaps less cash distributions from that entity in the near term? And just how that kind of rolls up into your overall views on distributions moving forward. Katherine Thomson: Yes. So shall I -- I'll take that, if you like. In terms of JERA Nex, the way to think about that is it's about creating for us in the future optionality, but in a very, very capital-light way. So JERA Nex will make their own decisions in terms of the projects that they execute and the sort of hurdles that they're testing against. But from our perspective, it will be very capital-light and capital that we -- if we were required to put capital, it's going to have to compete with the other calls on capital in our portfolio, which is a pretty high hurdle. In terms of Azule, a very different type of joint venture. It's been a very good quality joint venture for us so far. I think we've got about $7 billion of distributions from it year-to-date -- sorry, in total since inception. It's now self-funded. It's got a PXF and it's also issued its first bonds externally. So in terms of its being able to finance itself going forward and its growth, that's how we think about it right now. It has the ability to do more with regard to external financing. So we're not expecting it to be a drain on our capital. Of course, to the extent that it is recycling its own cash flow to invest in opportunities like Namibia, then you would see a slight reduction in terms of the dividends that we receive from that organization, but it's too early to be able to scale that for you. Murray Auchincloss: Yes. And if I just added a few things on Azule, we don't often talk about it, but it's had tremendous success, Jason. Agogo came online earlier this year, 8 months ahead of schedule. So congratulations to the team for doing that. MGC is the next major project that's going to come online shortly. And they, of course, have the exploration discovery near the LNG plant of TCF and a couple of hundred million barrels of associated condensate. So in Angola, it's doing fantastic. I was down there recently to celebrate the Agogo start-up and Gordon was offshore on it. So just a tremendous joint venture with Eni that's doing very, very well for us, and we're very pleased to have expanded that into Namibia and the success we're seeing in Namibia. So I hope that helps, Jason. Craig Marshall: I think we are probably at the final question given time. We're going to take that from Maurizio Carulli at Quilter Cheviot. Maurizio Carulli: Well done for the positive results. Can I have a bit more color on the 20% increase in Castrol earnings and what has driven it? And also, if I may squeeze in an additional question. Is it possible to have more detail on your recent strategic investment in the electronic cooling solutions? Katherine Thomson: So maybe you want me to take that one. Yes. So this is a consequence of very deliberate progress that Michelle has been executing now for -- I think this is the ninth quarter where we've seen quarter-on-quarter progress. They have a strategy of onward upward forward, and it's deliberately seeking to make their organization as cost-competitive as it can be and grow volumes, which they've managed to do systematically over the last couple of years in almost every part of the business. The other part of the improved delivery in Castrol, of course, is a consequence of the fluctuations that we've seen in base oil and additives and they hit a high post-COVID, those have tapered off a little bit. So that's also coming through, which is helping. But it's about very deliberately growing volumes, driving costs down to improve their overall operating cash flow delivery inside the organization. So that's doing really well. Do you want to talk about the liquid? Murray Auchincloss: Yes. The liquid cooling for data centers is an interesting opportunity. They've signed a couple of deals with counterparts. It's commercially sensitive, so I can't name the names, and they're in trial on that with a few companies. It's a long-term growth potential for the business. that looks quite interesting. It's quite a competitive space, and we -- we're hopeful that, that starts to develop and at a faster pace moving forward. But thanks very much for the question, Maurizio. Nice to hear your voice. Craig Marshall: We are going to finish promptly on the hour. Irene, Chris, I know you are still pulling. Maybe please follow up with the IR team in London. Happy to do so. A big thanks on behalf of Murray, Kate, myself, thank you for listening. Thank you for the continued interest in BP's results today, and we'll stop the call there. Thank you again.
Operator: Thank you for standing by. My name is Matt, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Super Micro Computer, Inc. Business Update Call. With us today are Charles Liang, Founder, President and Chief Executive Officer; David Weigand, CFO; and Michael Staiger, Senior Vice President of Corporate Development. [Operator Instructions] Michael Staiger: Thank you, Matt. Good afternoon, and thank you for attending Super Micro's call to discuss financial results for the first quarter and full fiscal year 2026, which ended September 30, 2025. With me today are Charles Liang, Founder, Chairman and Chief Executive Officer; and David Weigand, Chief Financial Officer. By now, you should have received a copy of the press release from the company that was distributed at the close of regular trading and is available on the company's website. As a reminder, during today's call, the company will refer to a presentation that is available to participants in the Investor Relations section of the company's website under the Events and Presentations tab. We've also published management's scripted commentary on our website. Please note that some of the information you'll hear during our discussion today will consist of forward-looking statements, including, without limitation, those regarding revenue, gross margin, operating expenses, other income and expenses, taxes, capital allocation and future business outlook, including guidance for the second quarter of fiscal 2026 and the full fiscal year 2026. These statements and other comments are based on management's current expectations and assumptions and involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated, and you should not place undue reliance on forward-looking statements. You can learn more about these risks and uncertainties in the press release we issued earlier this afternoon, our most recent 10-K filing for fiscal 2025 and other SEC filings. All of these documents are available on the Investor Relations page of our website. We assume no obligation to update any forward-looking statements. Most of today's presentation will refer to non-GAAP financial results and business outlook. For an explanation of our non-GAAP financial measures, please refer to the accompanying presentation or to our press release published earlier today. The non-GAAP measures are presented as we believe that they provide investors with the means of evaluating and understanding how the company's management evaluates the company's operating performance. These non-GAAP measures should not be considered in isolation from, as substitutes for or superior to financial measures prepared in accordance with U.S. GAAP. In addition, a reconciliation of non-GAAP to most directly comparable GAAP results is contained in today's press release and in supplemental information attached to today's presentation. At the end of today's prepared remarks, we'll have a Q&A session for sell-side analysts. Our second quarter fiscal 2026 quiet period begins at the close of business Friday, December 12, 2025. And with that, I will now turn the call over to Charles. Charles Liang: Thank you, Michael, and thank you all for joining today's call. Fiscal 2026 is off to a strong start as we continue the early phases of the dynamic AI growth trend. Demand for advanced AI compute and infrastructure solutions is evolving rapidly, and Super Micro is uniquely positioned to lead with innovative, high-quality and value-driven solutions, including our Data Center Building Block Solution, DCBBS. The major highlight this quarter continued to be our industry-leading AI portfolio. Our NVIDIA Blackwell Ultra with GB300 product line now have more than $13 billion in back orders, including the largest deal in our 32-year history, reflecting the tremendous growth potential in hyperscale and enterprise deployments. The B300 platforms are also gaining strong traction following the success of our B200 products as we continue to serve as the leading supplier. As noted in our pre-announcement, approximately $1.5 billion in revenue shift from the September quarter to December quarter due to last-minute configuration upgrade from our customers with expanded volume. This shift were largely caused by the complexity of these new GPU racks, which requires intricate integration, testing and validation, making them more time consuming to source and build. With production now quickly ramp up, these adjustments have eventually strengthened our growth trajectory and support an even higher full year outlook. Our product portfolio continues to lead the industry. In addition to NVIDIA GB300 and B300. We are shipping RTX PRO 6000, B200, [NVL72] and AMD MI350, 355X platforms in volume to power generative AI, large language model, inference and HPC workloads. To continue technology leadership in AI platforms, we are preparing for the NVIDIA Vera Rubin and AMD Helios launches in calendar 2026. Edge AI solutions are also gaining more traction for real-time processing in manufacturing, telecom, retail and autonomous environments. We are deeply focused on training LLM and Generative AI, we also see rapid growth in industry-specific model, agentic AI, broader infancy and AI at the edge. With that, we are seeing accelerating demand across cloud, enterprise and so as they upgrade and expand the data centers for AI. Our DCBBS helps customers accelerate and optimize customers' transformation. DCBBS is critical to our future success, enabling rapid planning, design and deployment of AI-ready data center and AI factory, while optimizing performance and minimize power consumption through our advanced and DLC and DLC-2 technologies and high efficient subsystem. Super Micro's building block approach now go beyond server system and rack configuration. It's optimizing the entire data center for customers. With product life cycle completion from 18 to 24 months to as short as 12 months, customers need rapid innovation, deployment and time to online. DCBBS delivers rack scale plug-and-play servers, storage, DLC systems, L2A heat exchangers, chilled doors, power shelves, battery backup for water towers, dry towers, network and cabling management software and services. We have begun shipping DCBBS orders to some key customers and expect many more data centers to follow suit. This solution is becoming a critical part of our business strategy, driving future growth and profitability. We are investing now and over the next few quarters. We will share more detail on our expanding DCBBS portfolio and upcoming release. To meet this unprecedented demand. Super Micro is executing an aggressive global expansion. Our Silicon Valley facility remained a foundation of U.S. operation, delivering time to market, quality and security for customers. We have quickly expanded our footprint in San Jose recently and are soon adding new North America sites to support the growing requirement for major CSP and NCPs. This investment underscores our commitment to American innovation, job creation and supply chain resilience. Internationally, new production facility in Taiwan, the Netherlands, Malaysia and soon the Middle East are coming online to enlarge our production capacity, enhancing cost competitiveness and meet regional serving AI requirements. With 52 megawatts of power capacity in place, we are on track to scale production to 6,000 racks per month, including 3,000 DLC racks within this fiscal year. While this expansion require upfront investment, they are critical to sustain long-term growth and deliver performance TTO time-to-online and cost efficiency at scale. In summary, Super Micro is developing into a leading AI platform and data center infrastructure total solution company. While we continue to grow our server storage rack and IoT systems, our DCBBS delivers unique advantages that set us apart, a design to reduce customer deployment, complexity, excellent time to market, time to online and lower total cost of ownership. Combined with our broad supply chain, deep customer relationship and expanding partner ecosystem, this capability positions us to become the leading data center infrastructure company. Recent large-scale orders and continued investment in customers, products, people and our processes put us firmly on the [path]. While competition remains intense we are focused on capturing tremendous AI infrastructure market share. Some large-scale deals have pressure margin in the near term. But our scale, innovation and differentiated DCBBS offerings strengthen our market leadership and position us to deliver long-term profitability and shareholder value. Looking ahead, we expect to ship at least $10.5 billion in the December quarter, depending on the supply and production capability readiness. We anticipate a sequential growth through fiscal 2026, giving us confidence in achieving at least $36 billion in revenue for the year. This is a truly unique time for Super Micro and I am super excited about the opportunity ahead. I look forward to sharing our progress with you next quarter. Thank you. Now I will turn it over to David. David Weigand: Thank you, Charles. Q1 fiscal year 2026 revenue was $5 billion, down 15% year-over-year and down 13% quarter-over-quarter compared to our guidance, of $6 billion to $7 billion. We had a record level of new orders exceeding $13 billion, but a customer's custom rack platform upgrade for a recent large design win and customer logistics factors delayed some shipments to Q2. We expect customer demand to remain robust for the remainder of fiscal year 2026. AI GPU platforms, which represented over 75% of Q1 revenues continue to be the key growth driver. During Q1, the enterprise channel revenues totaled $1.5 billion representing 31% of revenues versus 36% in the prior quarter. This was down 51% year-over-year and down 25% quarter-over-quarter. The OEM appliance and large data center segment revenues were $3.4 billion, representing 68% of Q1 revenues versus 63% in the last quarter up 25% year-over-year and down 6% quarter-over-quarter. The emerging 5G Telco/Edge IoT segment contributed the remaining 1% of Q1 revenues. For Q1 fiscal year '26, we had 2 10%-plus customers. By geography, the U.S. represented 37% of Q1 revenues, Asia, 46%; Europe 14%; and the rest of the world 3%. On a year-over-year basis, U.S. revenues decreased 57%, while Asia grew 143%. Europe increased 11% and the rest of the world increased 56%. On a quarter-over-quarter basis, U.S. revenues declined 16%, Asia decreased 4%, Europe decreased 16% and the rest of the world declined 48%. Asia grew significantly on a year-over-year basis as an existing U.S.-based customer opened a large data center in Asia. Q1 non-GAAP gross margin was 9.5% versus 9.6% in Q4. Q1 GAAP operating expenses were $285 million, down 10% quarter-over-quarter and up 7% year-over-year. On a non-GAAP basis, operating expenses were $203 million, which was down 15% quarter-over-quarter and down 2% year-over-year. Operating expenses were down quarter-over-quarter due to high marketing expense reimbursements and lower discrete R&D expenses. Non-GAAP operating margin for Q1 and was 5.4% compared to 5.3% in Q4. Other income and expense in Q1 totaled a net income of $26.3 million, reflecting $51.2 million in interest income on higher cash balances and FX-related gains, partially offset by $24.9 million in interest expense, primarily related to convertible notes. The tax provision for Q1 was $40 million on a GAAP basis and $59 million on a non-GAAP basis, resulting in a GAAP tax rate of 19.3% and a non-GAAP tax rate of 20%. Q1 GAAP diluted EPS was $0.26 compared to guidance of $0.30 to $0.42 and non-GAAP diluted EPS was 35% versus guidance of $0.40 to $0.52. The GAAP fully diluted share count increased sequentially from 625 million in Q4 to 663 million in Q1. And the non-GAAP share count increased from 638 million to 677 million over the same period. Cash flow used in operations for Q1 was $918 million compared to cash flow generated from operations of $864 million in the prior quarter. Q1 operating cash flow was impacted by lower net income and higher accounts receivable and higher inventory levels as we prepared for a strong Q2 with higher working capital needs. Q1 closing inventory was $5.7 billion, which was up from $4.7 billion in Q4. CapEx for Q1 totaled $32 million, resulting in negative free cash flow of $950 million for the quarter. During the quarter, we executed a $1.8 billion AR facility that enables the nonrecourse sale of certain qualified accounts receivable, providing flexibility to strengthen our working capital on a discretionary basis. At quarter end, our cash position totaled $4.2 billion, while bank and convertible note debt was $4.8 billion, resulting in a net cash -- in a net debt position of $575 million, compared to a net cash position of $412 million in the prior quarter. Turning to the balance sheet and working capital metrics. The Q1 cash conversion cycle was 123 days compared to 96 days in Q4. Days of inventory increased by 30 days to 105 days versus 75 days in the prior quarter. Days sales outstanding increased by 5 days to 43 days versus 38 days in Q4, while days payables outstanding increased by 9 days to 26 days versus 17 in Q4. Now turning to the outlook for Q2 fiscal year '26. We expect net sales in the range of $10 billion to $11 billion. GAAP diluted net income per share of $0.37 to $0.45 and non-GAAP diluted net income per share of $0.46 to $0.54. We expect gross margins to be down 300 basis points, relative to Q1 fiscal year '26 levels. Given the fast-moving dynamics in the end markets, we wanted to provide the framework of the factors impacting our gross margins. First, customer and product mix, including a strategic Q1 large design win, which includes higher cost and a lower margin as we ramp a new mega-scale GB300 optimized rack platform. And second, we are making greater investments with new customers to ensure their success with additional AI engineering support and services. To drive future growth, we believe that our investment in supporting these customers is leading to other large global design wins. Our long-term goal is to expand revenues in higher-margin segments such as Data Center Building Block Solutions, emerging global CSPs, sovereign mega projects, enterprise data centers, IoT and telco solutions and software service offerings. We do expect to benefit from some economies of scale driven by higher revenue levels, a cost-effective global manufacturing footprint, including our Malaysia facility and continued customer diversification. As we complete this mega cluster, we expect to leverage these investments and are establishing the most advanced AI service capabilities in the market. As we go through this transition, we expect our gross margins to improve. GAAP operating expenses are expected to be around $326 million in Q2, which includes approximately $76 million and stock-based compensation expenses that are excluded from non-GAAP operating expenses. The outlook for Q2 of fiscal year 2026, fully diluted GAAP EPS includes approximately $64 million in expected stock-based compensation expenses, net of tax effects of $18 million, which are excluded from non-GAAP diluted net income per common share. We expect other income and expenses, including interest expense, to result in a net expense of approximately $27 million. The company's projections for Q2 fiscal year '26 GAAP and non-GAAP diluted net income per common share assume a GAAP tax rate of 15.6%, a non-GAAP tax rate of 16.8% and a fully diluted share count of 666 million for GAAP and 680 million shares for non-GAAP. Capital expenditures for Q2 is expected to be in the range of $60 million to $80 million. For the full fiscal year 2026, we are raising our outlook to a net sales of at least $36 billion versus prior guidance of at least $33 billion. Michael, we're now ready for Q&A. Michael Staiger: Great. Matt, we'll take some questions. Operator: [Operator Instructions] First question is from the line of Samik Chatterjee with JPMorgan. Unknown Analyst: This is MP on for Samik Chatterjee. I just wanted to ask my first question on the revised guidance between like availability of chipsets and market share expansion. What do you think is the more of a driver for increased revenue guidance? Charles Liang: Yes, NVIDIA Blackwell Ultra is getting available. So we are receiving more and more allocation from them and preparing for a huge volume to ramp up start from this quarter. That's why this quarter, we estimate at least $10.5 billion. And looking forward, I mean, with our DCBBS, we will focus on both. One is continued move volume, higher revenue. The other direction is move more value to the market including data center product solution with our DCBBS. Unknown Analyst: As a follow-up, I just wanted to ask on DCBBS. Like I think you already started shipping those solutions. And like when do you think the DCBBS will become material enough to actually impact the gross margins? And then my other question is, like, are you -- any thoughts on initial feedback from customers? And then also any thoughts on the competition, which you are seeing relative to DCBBS. Charles Liang: Yes. Thank you for the question. Yes, DCBBS have been very welcome. We have some current large accounts already order some of the key DCBBS components. And we expect more and more customers will commit to our DCBBS. The idea of like what we share is to speed up customers to deploy, build a data center, save their time to online. And also make power more efficient, save money overall, build a more solid data center. And the profit margin will show a much higher in the industry for data center infrastructure, basically, the business is more than 20% profit margin. And we are very excited for that product line to be getting available. And I believe it will ramp up very soon. Operator: Next question is from the line of Asiya Merchant with Citigroup. Asiya Merchant: Great. The order pipeline that you guys talked about is pretty strong. And so if you can help us understand what's the components that are contributing to such a strong order outlook that you have embedded into your guidance? And if I may, you guys talked a little bit about -- or about this revenue guide that you guys are exceeding sequential growth expected post fiscal 2Q. If you can just also help us understand how we should think about gross margins as we proceed through the year and the OpEx to support such a strong revenue outlook? Charles Liang: Yes. I mean, GPU, for sure, contributed most revenue kind of like Blackwell Ultra, and kind of like the AMD MI350, 355 and Blackwell B300 and RTX, right? So indeed, a lot of strong product line are driving our revenue. And at the same time, again, for the best interest to our customers, we try to provide data center end-to-end solution, including DCBBS, including management software, on-site deployment and service. So to put in a one-stop shopping for customers' advantage and also grow our profit margin. And David, you may add something for long term. David Weigand: Sure. Yes. So on the gross margin question, we are -- we're going into a quarter where we are ramping one of the largest clusters in the world. We're ramping a new product line at mega scale. And so therefore, we're being a little conservative on the margin because we will have a higher cost as we ramp production and shipment. So we're just giving guidance for 1 quarter out, but we did mention that as we go out throughout future quarters, we're expecting to improve for the reasons that we laid out. On the OpEx side, you can tell from looking at our -- historically, we are that sub-5% OpEx, and we expect that to continue. But we will continue to increase our OpEx in order to strengthen our infrastructure. Charles Liang: Yes. I'd like add 2 more areas. Yes. One area is traditionally, our revenue was about $5 billion to $6 billion quarterly. And now we are growing to $10 billion quarterly. So that, for sure, increase short-term challenge. And that's why we have to leverage U.S.A., Taiwan, Malaysia facility. And that kind of involved hiring lots of new people, train our people and add a facility. But once this much higher capacity facility already in this quarter, December quarter, we will be able to service large customers in U.S.A., in Asia and Europe, truly global major supplier. And by that time, for sure, our resource leverage will become much more efficient. And second is our DCBBS is getting mature and getting ready to service more customers to put in more value to customers, and that I believe we have grown our profitability. Asiya Merchant: That's great. If I could just on the orders that you talked about, $13 billion, I know you provided it at chip-set level. I think I was looking for just customers that are constituting that $13 billion? If you can just share some insights into how percentage of customers that are in there that contributed to such a strong order book or $13 billion? David Weigand: So they constitute some of the best customers in the world, I'll say that. We had 2 10% customers this year. We ended last year with 4 10% customers. We always welcome new large customers. And -- but we don't have any -- we usually don't talk specifically about individual customers. Charles Liang: Yes. But they are really high-profile high-value partner for long term. That's why we do such a big effort to greatly increase our capacity to support them. There are some of them. So we are very happy to enhance the support to those high value partner. Operator: Next question is from the line of Ananda Baruah with Loop Capital. Ananda Baruah: A couple, if I could. Charles, the midpoint of the guide for December is $10.5 billion. And the guide for -- the updated guide for the fiscal year is at least $36 billion. And so if I model out $10.5 billion for each March and June, I get sort of just over $36 billion. You're talking about a lot of $13 billion in GB300 product wins, a lot of good activity going forward. So I guess my question, Charles, is -- first one is, are you being conservative? Is there conservatism baked in to the implied March and June quarters? Or should we expect some flattening out of revenue in the coming quarters? And then I have a follow-up. Charles Liang: Yes. Thank you for the question. Yes, this is the first time we grow our revenue to about more than $10 billion a quarter. So we are very excited about it. So now we already expand our capacity global and train our people and have all our facilities ready. So from now on, we are ready to be really big supplier around the world. And with Blackwell getting mature and [yearly] quality, everything is promising at this moment. And so we feel very excited to have at least $36 billion. And hopefully, it's a very conservative number. And at the same time, we are doing our best to grow our DCBBS total solution because that's the unique data center infrastructure tool to help customers build a data center quicker, better, save energy and save money. So overall, I believe with DCBBS become more mature, our profitability will improve. Ananda Baruah: And Charles, do you -- I know we're talking fiscal year -- we're talking fiscal year expectations. But do you anticipate the strength to continue through the calendar year? There's been a lot of large deals with neoclouds announced lately with large AI labs and hyperscalers, and that's your sweet spot customer base, the neocloud. So should we anticipate this kind of strength without giving me a guide, but could the strength continue through the balance of the calendar year? Charles Liang: Yes. Indeed, our capacity is in given scale now, as you know, right? So $36 billion is a very conservative number. So we believe we will continue to grow quickly, continue to lead the market with not just technology, but also market share. Ananda Baruah: I appreciate that. Mike, just one quick clarification with David here. David, just to your prior comments about gross margin improvement through the year, is that to say that December quarter is the low watermark gross margin quarter for the fiscal year? That's it. David Weigand: Yes, that's fair. We are -- as I mentioned, this is a quarter of first impression for us on standing up doubling our revenues in 1 quarter. And so we're doing everything we can to improve our margin, but we're not making forecast out beyond December quarter. Operator: Next question is from the line of Ruplu Bhattacharya with Bank of America. Ruplu Bhattacharya: David, can you remind us how much total revenue can your manufacturing footprint support today? And when it's fully utilized, what would that number be? And at what point do you decide to add more capacity, such as adding a new plant? And if you can weave in any update to the Malaysia plant, is that now building racks? And what's the status of that plant? And I have a follow-up. David Weigand: Okay. So maybe I'll let Charles talk about capacity, but we've mentioned that we have a rack capacity of 6,000 racks per month worldwide. And so I don't think that we have spoken as to what that value is. But I can say that Malaysia, we are starting to stand up more in terms of their production, and we expect it to contribute greatly going forward. Let me see, did I answer -- what other questions did I miss there, Ruplu? Ruplu Bhattacharya: And -- go ahead. Charles Liang: Yes. I guess we try to be very, very conservative. Because with Blackwell Ultra is still brand new, right? So we had to make sure we ship exactly the best quality, the most reliable system to customer. And that's why we spend a lot of time to burn in our solution. And that's why we build up such a huge capacity. If you time 3,000 liquid cooling tower per month and time 12 months a year. And each rack, for example, $3 million. So the number is more than $100 billion. So yes, if everything smooths, our capacity is that $100 billion range now. But we try to be conservative and try to design carefully, burning carefully, make sure all the product we deliver to the market is exactly the same in the market. Ruplu Bhattacharya: Right. And as a follow-up, David, can I ask? You have this large project ramping over the next several quarters. How should we think about working capital and cash conversion cycle and free cash flow? And at what point would you need to tap the markets to raise more capital? David Weigand: Yes. So we've maintained about $5 billion on average. And obviously, when you double your revenues, that's not going to be enough working capital. So as we announced, we did put an accounts receivable sales program in place, which allows us to factor our receivables up to $1.8 billion. And we're also -- we also have other programs that are being put into place to meet our needs over the upcoming quarters. So we have no doubts about our ability to execute on those programs. Charles Liang: Yes, to add it -- we definitely have a capability to service more customers with a much higher volume, but we will control our revenue based on our cash flow. Operator: Next question is from the line of Nehal Chokshi with Northland. Nehal Chokshi: Yes. Great demand there and understandable that ramping up a new customer on the B300. But I guess, I think it was maybe a year ago, 1.5 years ago that it became apparent that you guys were helping xAI Colossus [ 8 ] -- Colossus 1 ramp up. And that was dilutive to margins at that point in time. The rationale was to get this lighthouse customer and demonstrate the Super Micro's engineering capabilities. Why is it necessary to basically do a routine repeat of this proof of Super Micro's engineering prowess? Charles Liang: xAI, for sure, a very good partner. And whenever we have a chance, we try to work with them to learn some things from them and to offer our best service. So yes, xAI will continue to be our important partner for long term. And again, our capacity is huge and capability is much bigger now, but we will be selective to grow our revenue based on our cash flow. David Weigand: And Nehal, what I would add is that what we are doing is that we are validating each time as we did 1.5 years ago and now that we're the premier provider of advanced DCBBS solutions and AI data centers. So we gladly stepped into that role, and we continue to get additional business each quarter as a result of these successful installations. Operator: Next question is from the line of Quinn Bolton with Needham & Company. Shadi Mitwalli: This is Shadi Mitwalli on for Quinn. My first question is on gross margins. I know you guys mentioned new facilities coming online and that possibly being a tailwind for gross margin over time. So I was just wondering if we can get some more color here on the timing and maybe just the overall impact of these new facilities would have. Charles Liang: Yes. As you know, we need to invest in Malaysia and Taiwan in U.S.A. all our location. So make sure we have enough capacity to put in the best quality product, most optimal to the market. So in December quarter, we spent a lot of money to establish the foundation. And going forward, now we have those capacity and capability to grow much larger scale business. Shadi Mitwalli: Great. And then my follow-up is on the Super Micro federal program you guys announced intra-quarter. I was just curious if we can get some more color on this program? And maybe what led to the creation of it? And how this initiative could position Super Micro for government contracts going forward? Charles Liang: Yes. We are U.S.A. company and have design manufacture service from Silicon Valley. So federal business should be sweet spot for us. And now we have more talent in service, in the customer relationship, in [indiscernible] kind of support. So that's why we officially initiated a federal program. Operator: Next question is from the line of Jon Tanwanteng with CJS Securities. Jonathan Tanwanteng: I wanted to expand on the prior question on just the case study with Colossus last year and how you took the margin hit to land that customer and validating new technologies. Apparently you're doing it at this time with the bigger customer and at a lower margin. So I guess the question is, philosophically, I'm not asking for margin guidance, but how do you expect to grow the margin going forward from here? And like how do you prevent that from happening again? Have you seen that stronger margin from follow-on orders from the customers that you have validated your technologies to? Or is that still something that is on the comp or hasn't been possible in this environment for whatever reason? David Weigand: So there are several different initiatives. One, Jon, as you know, we get leverage off of the additional business that we have. We also, as we've mentioned, are pursuing manufacturing in other geographies in order to serve local customers, which we believe will also lower costs. We also have added on data center building block solution strategies, which we try to outline on every call and the expansion of business. But it's really, as I mentioned earlier, it's the success and the market share that we're taking that are bringing a lot of emerging, not only existing companies from around the world, but also -- and sovereigns, but also new and emerging CSPs and neoclouds and other companies, enterprises coming to us because they recognize the Super Micro name. So we expect that, that will overall raise our margin profile and so we're doing everything we can to raise our margins. But yet, we still want to be the premier provider of DCBBS solutions. And so we think that we have a good strategy in that regard. Jonathan Tanwanteng: Okay. And just to clarify, have you seen the higher margins from customers where you maybe gave them better pricing or put you on investment into the initial orders as you get follow-on orders and repeat business from them? David Weigand: Yes. So every -- different customers have different margin profiles based on the amount of design that the Super Micro does for their solution as well as the size of the order that they're placing. So as in any business, customer ordering $1 billion of product is different from a customer ordering $10 billion of product in terms of pricing strategy. So therefore, we're very happy that the customers that we have brought into the Super Micro portfolio of customers is really adding a lot of name value to our brand. And so that's what we're very pleased about. We're gaining market share. There's no question about that. Jonathan Tanwanteng: Got it. If I could sneak in one more. Just how are you accounting for the risk of further pushouts in the revenue outlook for the year, just given you've had a couple of high-profile ones already? David Weigand: Yes. So the timing of it -- whenever you're dealing with very large projects, it's not always easy to fit deliveries into 1-, 3-month time frame. And there are all sorts of -- I mean if you take a look at the thousands and thousands of parts we have to bring together to build our solutions. And also on the customer side, the things that they're having to do to get their data centers ready, there's a lot of logistics that have to take place. It doesn't always line up perfectly with our quarter ends. So we've said, as we continue to take large customers, it's going to be -- there's going to be things beyond our control which includes customer readiness, which includes supply chain issues and et cetera, that will -- that may impact quarter-to-quarter results. But if you look at last quarter, or if you look at the last 2 years, we went from $7.5 billion to $15 billion to $22 billion, okay? So that trend did not stop. We were adding $7 billion for the last 2 years, each year. Now did those quarters all line up perfectly according to our plan, our annual plan? Not always. But the trend is still there. And we've increased our revenues as well as our profits. And that's what we intend to continue to do. Operator: Next question is from the line of Mark Newman with Bernstein. Mark Newman: So very encouraging to hear about the large orders, $13 billion order you mentioned. Just curious, though, there's not a lot of historical data on orders or backlog. And any color you can give on the size of the backlog of orders or how $13 billion compared to previous quarters. Just trying to understand that what's the size of the -- which we've got guidance on from some of your competitors in the past. And another follow-up question on gross margins as well. David Weigand: Okay. So first, I'll answer that, your first question on historical data. We've -- it's been our practice not to talk about backlog. We couldn't help but talk about the orders that we receive, the new orders that we received, new design wins because they did have some impacts in both the current quarter as well as the December quarter. And so we're speaking to those. But we're not -- we don't talk generally about backlog. So I'll take your second question on gross margin. Mark Newman: So gross margins, I mean I know you're trying to stay away from long-term guide, but previously, I believe you've talked about this 15% to 16% long-term target for gross margins. Is that still intact but pushed out? Or is that now not up for grabs? Just curious what's the thinking on that? David Weigand: Yes. Back in -- I think in 2021, we came out with a 14% to 17% gross margin guide. That's probably what you're referring to as a long-term target. The market has changed. And so we -- in fact, we're right in the middle of a change right now as we move on to some new, very new dynamic platforms. And so we will give margin guidance as we can see it clearly. We're doing our best to raise margins in a very competitive landscape. Yes, we would love to be back in double digits. But we'll give guidance when we can see it clearly. Charles Liang: And hopefully, it's not too far away. Indeed, we focus more on DCBBS and enterprise account, then double digital is easy for us. But at the same time, we are very interested to support a large-scale CSP as well. And so far, it looks like it's a great chance for us to service more large CSP customers as well. With large CSP customer and DCBBS enterprise together, our revenue will continue to grow very fast. And double-digit gross margin still in our plan, it just take a little bit longer. Operator: Final question is from the line of Brandon Nispel with KeyBanc. Brandon Nispel: I think echoing the same comments around gross margins that's looking at the guidance, it really implies 0% contribution margin. And so I think revenue growth is great, but was hoping you could really help us understand what's on the other side of this, right, in terms of help us understand what this business looks like from like a free cash flow contribution standpoint, as you guys scale it, because you can't just keep going down the path of lower and lower gross margins, especially when the revenue coming in, is at a 0% contribution margin, again, based on the midpoint of your guys' guidance? David Weigand: So again, we believe that we can't name all of our customers, but I can tell you that we are bringing in some of the best companies in the world. And we believe that our first-to-market practice of being able to bring reliable and optimize solutions quickly to market will reward us well. And this has been our practice over the last 32 years. And so we've consistently been first to market, we have shown that we can grow quicker than the market at large. And we've also shown that we can bring customized solutions, which bring very good margins and very good returns to the bottom line. So we're staying with our game plan. Right now, the market is going through some new cycles with new kind of exciting new platforms coming out. We believe that this will pay off. So we're staying the course. Brandon Nispel: And then just... Charles Liang: Yes. For sure, we will keep our bottom line, make sure we continue keep our bottom line, make sure we continue to make more total profit every quarter, every year. With that as the base for sure, when we have a chance to grow more market share, we try to grow more market share as well. But bottom line is make sure every quarter, every year, we make more total profit. Brandon Nispel: Got it. And David, are there any like onetime costs with the design wins and the upgrade pushouts that fell into this quarter in terms of like onetime costs that you're absorbing in this quarter's gross margin guidance? David Weigand: So you're -- in terms of the December quarter, yes, there are -- there's a lot of additional engineering costs and expedite costs and overtime costs that result from delivering kind of what would be twice our normal revenue run rate and scaling a new technology at what we believe would be one of the largest clusters in the world. So yes, there are a lot of extra costs that go into that. And that we don't -- that we believe will actually prepare us for the upcoming quarters? Charles Liang: Yes. It's basically our first GIGA project. And hopefully, we can make it perfectly complete. Operator: There are no additional questions waiting at this time. So I'll pass the conference back to the management team for any closing remarks. Charles Liang: Thank you. Thank you, everyone. Operator: That concludes the conference call. Thank you for your participation. You may now disconnect your lines.
Operator: " Mark Chalmers: " Ross R. Bhappu: " Nathan Bennett: " David Frydenlund: " Nathan Longenecker: " Heiko Ihle: " H.C. Wainwright & Co, LLC, Research Division Joseph Reagor: " ROTH Capital Partners, LLC, Research Division Nick Giles: " B. Riley Securities, Inc., Research Division Tatiana Lauder: " Unknown Analyst: " Operator: Thank you for standing by. My name is Eric, and I will be your conference operator today. At this time, I would like to welcome everyone to the Energy Fuels Q3 2025 Conference Call. [Operator Instructions] I would now like to turn the call over to Mark Chalmers, CEO and Director. Please go ahead. Mark Chalmers: Thank you, Eric. And again, Mark Chalmers, CEO of Energy Fuels. I want to thank everybody for joining our Q3 conference call today. And I can say with absolute confidence, the entire team continued to deliver on our promises this quarter, which is rather unusual in today's world when it comes to getting projects restarted in advance. Namely, we had increased sales, increased revenues. We continued our buildup of low-cost and increased our uranium production. So we're lowering our costs as we increase our uranium production. And we're setting the stage for increased gross margins in 2026, and the timing could not be better. We're making remarkable progress on our rare earth segment, including heavy rare earth piloting and plans for commercial production. We've received a qualification for our NdPr production, which is going into major automobiles manufacturers as we speak. We received all government approvals for the development of our Donald joint venture project in Australia, which has significant heavies as well as NdPr. We received a conditional letter of support from Export Finance Australia, more commonly known as EFA, for up to AUD 80 million, and that's with respect to our senior debt project financing for the project. We also completed an upsized offering of a $700 million convertible note on very favorable terms. And post-quarter, we had a working capital balance approaching USD 1 billion. As many of you understand, these accomplishments are not the norm for many in our sector because it is tough. It is tough to produce uranium. It is tough to produce heavy mineral sands, and it's tough to produce rare earths. And we are a company that is playing the long game. We've been doing that for a long period of time. We deliver on our promises. We have the right team with the right skills, and we have put the company in a unique position of all things, critical minerals, including uranium by design. Not an accident. We're capitalizing on our advantages, which are skills, infrastructure, permits, and capacity globally in all 3 of those sectors. So just a reminder, there will be conference call replays or a replay, which will be on the website later today. And as always, as Eric mentioned, there will be time for questions at the end of the presentation. New for today's call and for the presentation, I will have Ross R. Bhappu, our President; and Nate Bennett, our CFO, to discuss overall company finances, and Ross will be talking about the convert. And in addition to that, at the end of the presentation, both Nate, Ross, Dave Frydenlund, our Executive VP and Chief Legal Officer; as well as Nathan Longenecker, our Senior VP and General Counsel, will be available to answer any questions I am unable to answer. So let's get going. Again, I always say this, I love this slide because we're building a globally significant critical mineral company in the U.S., and this picture is taken not far from the White Mesa Mill. Next slide. I may be making some forward-looking statements. Those are included on Page 2 of this presentation. Next slide. An investment in Energy Fuels is really these 3 investments that I discussed: the uranium, where we are the leading producer of uranium, lowest cost producer of uranium in the United States, the rare earths, which are rapidly emerging, globally significant, and the heavy mineral sands, which will provide the rare earth feeds, the monazite for our rare earth processing. And so basically, you get 3 companies in 1. We are focused and we build these 3 companies on how they fit together, Energy Fuels around the foundation of our core uranium business. And all of these materials contain naturally concentrations of uranium that are found alongside the minerals that occur with these minerals. Next slide. We talk about the uranium mines. And as I mentioned, we're producing more uranium than any other company in the United States today. The Pinyon Plain mine in Arizona, which is in production and it's conventional. We're ramping up our production there. And it's got -- I believe it's the highest grade uranium mine in the history of the United States, and we're actively mining and shipping ore to the mill right now. That's going very, very well. And we'll be seeing and hearing more about that during this presentation as we ramp up the scale of the Pinyon Plain mine. At the same time, the LaSalle complex, also conventional in production. That actually is the Pandora and LaSalle incline, but there are also several other mines along 11-mile trend in that area. And that mining is advancing, and we're doing additional work on other mines there that are being reactivated as the uranium business improves. Next slide. So let's talk about uranium production moving forward. At the mill in Q4, we've commenced processing with the newly mined Pinyon Plain ore in this quarter, and that's the first uranium that has been produced at Pinyon Plain at the mill were actually processed at -- the Pinyon Plain ore processed at the mill. We expect to produce between 1.1 million to 1.4 million pounds of uranium to Q1 '26. That run could go longer. And when we run the mill, basically, we produce about 200,000 to 250,000 pounds per month for every month we run the mill. At Pinyon Plain in Q3, we mined around 415,000 pounds of uranium at an average grade of 1.27%, that is a bit lower because we're mining kind of the upper part of the main zone, where the grades are lower. So that is all expected. Year-to-date, we've mined 1.15 million pounds of uranium at an average grade of 1.66%, and we expect to be mining over 2 million pounds per year at the Pinyon Plain Mine in 2026. Truck haulage has been an impediment earlier in the year, but I'm pleased to say that we have improved that significantly. We've been averaging about 250 trucks per month, and that is more than sufficient to get to about that 2 million-pound run rate for production, getting that ore to the mill. The relationship with the Navajo Nation is going very well, and we've seen that turn out to be a significant positive for both Energy Fuels and the Navajo Nation. And we had a number of those from the Navajo Nation at our open house, which was held a month or so ago, and it was really pleasing to see how they've received the relationship and how we've been executing that relationship together. Uranium cost of production cost of sales are expected to decline. We have previously mentioned that we believe the Pinyon Plain cost will be in that $23 to $30 per pound range as we ramp up production and as we process this material. We have existing inventory right now at the mill of 485,000 pounds, and that is currently at a cost of goods sold of around $50 to $55 per pound. And it's sort of a mixture of various feeds that we processed, including LaSalle, including some of the cleanup material that we've done, and alternate feeds. But as we start ramping up the Pinyon Plain run, we see those same -- the costs dropping pretty materially, should be in that $30 to $40 per pound range in Q1 of this '26 and lower as time progresses. Next slide. So on the contract front, we still have 4 existing contracts. I believe that we are seeing a strengthening in desire for long-term contracts with utilities. In 2025, we have contracts for 300,000 pounds, of which we just in this last quarter, sold 140 into contract. And -- but those commitments are increasing in 2026, and they ramp up to 620,000 pounds to 880,000 pounds and could be higher in due course. We're looking at various spot and midterm sales for the additional uranium inventories that we have that will be greater than our contract sales, and we have a significant margin to benefit from that because we didn't overcontract where other companies have overcontracted and are having trouble meeting those commitments. But we're also looking at other long-term contracts in due course, and the terms just seem to improve as time progresses. And lastly, we have also received a small amount of ore from third-party miner in Colorado. Next slide. So let's talk more -- a bit more about rare earths and heavy mineral sands highlights. We are becoming the leading rare earth producer in the United States, including heavies. I mentioned earlier that we have been getting our NdPr oxide validated by outside manufacturers and confirmation, particularly with POSCO, with that material or some of the surplus material going into the production of electric vehicles and hybrid vehicles. The piloting has been going exceptionally well. We have recovered around nearly 30 kilograms of Dy oxide, 99.9% pure and that's through September of '25, and we're getting ready to start piloting Tb later this year. We're also -- based on the results that we have from the piloting, we are expecting to advance commercial production of heavies later in 2026, and that in itself is a major milestone to pull that off, where we'll be able to commercially recover Dy Tb and perhaps other elements like Samarium through that circuit. Phase 2 feasibility study at the mill is progressing very well. We expect to have that completed towards the end of the year. And the design of that facility, given sufficient feed, would be up to 6,000 tons of NdPr oxide, 275 tons per annum of Dy, 80 tons per annum of Tb, and potentially other rare earth oxides. So that in itself is world significant by every measure, and it is approximately the same quantums as Lynas is in Australia and Malaysia. Next slide. And I've used this slide and talked about this slide before, but monazite is our structural advantage. It is simply a superior rare earth concentrate, super high grades, more NdPr, more heavies, more mid and heavy rare earth oxides. It's a low-cost byproduct of HMS mining. We get the uranium credit. It's easier to process if you have the facilities that can receive the radionuclides and high recoveries. You can see the existing SX circuit in the mill building that recovers the rare earth lights, and you can see the bulky bags. And what we're planning to do is to include a circuit in that building or very close to that building for recovery of the heavies with the commercial facility. So we're the only facility in the U.S. that has the ability to process monazite into lights and heavy oxides. Next slide. So let's talk a bit about the Donald project in Australia. It is shovel-ready and is an exceptional source of heavy rare earth oxides. We expect that potentially as early as Q1 of '26 that we will be in a position to make a final investment decision, a FID, and potentially have monazite deliveries from the Donald project by late 2027. As I mentioned, has exceptional high concentration of the heavy oxides, the Dy, Tb, and Samarium and others, and it is allied country and friendly jurisdiction. It is a joint venture with Astron, where we're earning our 49% JV interest. But we will receive 100% of the monazite. I mentioned the conditional support from EFA for project development financing, and the total capital cost of that project is approximately USD 340 million. And Energy Fuels has agreed to fund approximately the first $120 million. And after that, that will be split between the joint venture. Next slide. Now this is an interesting one showing that at the design capacity of Phase 2, in the capacity at the White Mesa Mill and reflecting on the current rare earth oxide prices, particularly those prices that are outside of China, where NdPr prices are -- have increased 13% over September of 2025 and then looking at the prices outside of China in the European Union for dysposium and terbium, which are all at premiums to the China prices and you look at the production capacity of the rare earth oxides at Phase 2, you can do some simple math there, and that's about $1 billion if you achieve those prices in those production quantities. So it is very, very material. Next slide. Talk about Toliara, heavy mineral sands, and rare earths and Madagascar. It's economically robust and scalable. It is a large-scale operation. It is a high-grade heavy mineral sand deposit. We believe, and many others do and agree that it is considered one of the best heavy mineral sand deposits undeveloped in the world and includes the significant byproduct of rare earth monazite. It's very simple from a mining perspective and tailings perspective, technically straightforward, exceptional project economics. We plan to provide an updated feasibility study by the end of 2025. It has a long project life. There has been some unrest in the country, and a new government is in the process of being appointed. And while the outcomes are not fully known, initial indications are that the new government is pro-economic development. So it's been a little choppy there, but things are starting to settle down, and we're just basically adjusting our plans as prudent as that settles down. We do have people in country that are resident in country that are still working on the project. As a matter of fact, we are still working on the project. And so this work is ongoing. And I believe that Toliara is a company maker. And when you look at when we acquired Toliara, we acquired it because we believed it was a company maker. And I think our time is coming in due course to have this contribute materially to the company going forward. Next slide. Again, you've seen this timeline, and it really hasn't materially changed. There's been a few additions where we've added the rare earth processing of heavies with the Phase 1, also the uranium production ramping up at that 2 million pounds plus over those time horizons and looking at both the Bahia project, the Donald project, the Toliara project, the material we received from Chemours and potentially others that basically position us in the same quantum as Lynas going forward. So we're still executing on all fronts. And again, I don't think the timing could be any better. So now for the tricky part, we are going to show a video explaining our heavy mineral sand processing. [Operator Instructions]. Okay. Hopefully, that provided some information on how the heavy mineral sand mining process advances and how we end up with a monazite concentrate that then is transported to the White Mesa mill for further processing. So -- and again, we're trying to add some of these videos to just mix it up a bit and provide additional information on the company. So now I'd like to hand over to Ross Bhappu to talk about the convertible note. And then after that, will be Nate Bennett, our CFO. Ross R. Bhappu: Thank you, Mark. Well, as Mark mentioned, the company is in very strong financial position right now. On the back of about a $700 million fundraising we just recently did, we intend to use those funds to expand our Phase 2 project at the White Mesa Mill. We also intend to use some of those funds for the Donald project development. Again, it was a fantastic outcome. And really, the funds were very, very inexpensive. It's an inexpensive source of capital. We used an unsecured convertible debt structure that gave us maximum flexibility. The interest rate on that note was 0.75% coupon rate, which is incredibly low. It gave us a 32.5% conversion premium. So the reference pricing was $15.30. The premium with the premium it gave us a $20. 34% conversion rate. The all-in effective tax rate on that note is about 2.1%, again, a very, very inexpensive financing. The nuance of the note was that we put in a capped call feature. The capped call effectively gave us insurance against future dilution and gave us an effective conversion price of $30.70. So it was a very successful offering. Again, we raised $700 million, and it was oversubscribed by more than 7x. The use of the funds is shown there on that slide, the Phase 2 expansion. And if we go to the next slide, it gives you a sense of just how big White Mesa will be. Effectively, we're planning to double the size of the facility to give us individual lines for both processing uranium and rare earths simultaneously. So it's an incredibly impressive project that we're undertaking, and we've got a great financial position to undertake these future plans. And with that, I'll hand it to Nate to talk a little bit more about the financial structure. Nathan Longenecker: Okay. Thank you, Ross. During the third quarter, we continued to strengthen our financial position as we're preparing to develop our long-term projects in the next couple of years, and we finished the quarter with $750 million in total assets. We also increased uranium revenues leading to an improved net loss of $16.7 million compared to the second quarter's net loss of $21.8 million, and we continued low-cost uranium mining at our Pinyon Plain mine. We expect this to continue to improve as we mine and produce low-cost uranium inventory and increase future uranium sales in the fourth quarter. At the end of the third quarter, our working capital was approximately $300 million, which includes $235 million of combined cash and marketable securities with the majority of these marketable securities being interest-bearing securities, treasury bills and bonds. This does not include the $625 million net proceeds from the senior convertible note completed in the fourth quarter, and this will be reflected in our fourth quarter balance sheet. And by the end of the year, we expect working capital to be somewhere between $900 million to $1 billion in working capital. During the third quarter, we sold 240,000 pounds of uranium at a realized price of $72.38 per pound and a gross margin of 26%. We expect similar margins for our fourth quarter sales as we sell and average down our 485,000 pounds of finished uranium inventory that we had at September 30 and as we start to add our approximate 670 pounds of low-cost finished uranium inventory during the fourth quarter as we process those pounds at the mill. As we continue to mine and process ore into 2026, we expect our finished uranium inventory cost per pound to decrease from approximately $50 to $55 per pound to approximately $30 to $40 per pound with our gross margins expected to increase to approximately 50% or above and above. And with that, I'll turn it back over to Mark. Mark Chalmers: Thank you, Nate and Ross. Look, these last few slides are a bit repetitive, so I'll try not to repeat too much. But look, we plan to retain our status as the largest uranium miner and processor of uranium ores in the United States. There was a time where people questioned if we were leaving the uranium business. Well, we're not. We're still going to be #1 in the U.S. We're processing ores. As discussed, the White Mesa Mill is running with Pinyon Plain alternate feed materials and some LaSalle material. We're increasing or have the ability because we have not overcontracted. We're looking at opportunistic spot sales and other opportunities to add to our contract sales volumes, and we'll have a material amount of additional uranium to do that, whether that be later in '25 or in '26. The cost of goods sold is decreasing, as Nate has mentioned, with the addition of the Pinyon ore. We're increasing our ability to produce uranium of 2 million pounds plus per year. And we could probably do that with Pinyon Plain alone without alternate feed, without LaSalle complex and other projects. So we're very comfortable in saying that. The margins are expected to improve material with lower cost and increasing improved uranium prices. We've talked about the 3 conventional mines that are currently in production. We're getting a number of other mines ready for production. Some of those are already permitted. Some are not, but we're advancing the ones that are not fully permitted to get our ability to produce 4 million to 6 million pounds per year, particularly once Phase 2 is completed and the mill is able to be dedicated 100% to uranium production. And we're still continuing advancing the R&D work on the uranium recovery. Next slide. And just talking a little bit about guidance. We haven't really changed this since Q2. But I want to say that we are always conservative on guidance. And I am very, very hopeful and positive, and we mentioned in the press release that we are on the higher ends of a number of these areas, and we hope to exceed guidance in some of these areas. And for example, on the mined uranium, I'm quite confident we're going to be well above that. Look at sales. We have 350,000 pounds. Well, we've already sold 290,000 pounds year-to-date, and we've got contract sales of another 160,000, which would put us at 450,000 and whatever spot sales that we might have on top of that. So we want to be conservative because we deliver on what we say we're going to do, and I like to surprise people on the upside or the company does and the team does. Last slide, just talking about the rare earth and the mineral sands. We mentioned the piloting on the heavies. And we also mentioned the fact that we're planning to have the ability to commercially recover heavies later in '26. Phase 2 expansion project going along very well. I already talked about the quantums for NdPr, the Dy and the Tb. And we will have that -- we're planning to have that update for the feasibility study at the end of this year. Donald project, we discussed with the FID. We think it is in a unique position to supply a material amount of heavies and lights to the United States as required. Toliara FID is still expected in 2026. We're still working through this -- the -- pursuing the permits and approvals with this new government. But as I mentioned earlier, they appear to be pro-business, pro-development. So we just have to kind of see how things shake out there. And we also have all our exploration permits to restart some of the drilling at the Bahia project in Brazil. And on top of that, we're always looking at other opportunities. We do not stand still at Energy Fuels, and we're looking for value-accretive opportunities on a number of fronts, and we'll continue to do so. We have a strong balance sheet to deliver on our existing projects, but we also have a strong balance sheet to look at other opportunities that may come our way. So last slide is just this pretty picture again, the diversified nature of our business with these multiple critical elements. And now I'd like to turn it over to questions for those that are listening, and we will do our best to answer those questions. Operator: [Operator Instructions] Your first question comes from the line of Heiko Ihle with H.C. Wainwright. Heiko Ihle: Conceptually, for the Donald project, I mean, you got the final government approvals. You got the $80 million from EFA. You actually discussed that earlier on this call. We might see the FID as soon as next month. But I mean, just again, conceptually past that, you got the balance sheet and liquidity to put whatever number is needed really into this. Why are we not doing that? And I know the time line is quite accelerated, but I feel like we might be able to shave 1 or 2 quarters off of that now. Mark Chalmers: Yes, Heiko, it's ready to go. I mean what we're looking at is, as you know, there's this huge interest in getting these materials like from the Donald project in the United States, particularly the heavies. And we're just looking at our options potentially with offtakers for that project. And we're working through what that can look like. We've been talking to and basically out seeing what the opportunities could present. And I think there's also this opportunity when you look at that project and you look at these higher prices that are being placed on non-China material, there can be premiums there. So we're really looking at what those are and to help us make the best informed decision there. And that's really what we're doing is we're shopping around to see what interest in those products that are out there, whether it be private or even government agencies that might be interested in those products. Heiko Ihle: And it wouldn't make sense to essentially skip that into the secondary step and just move forward now while you're looking for that? Mark Chalmers: Yes. I mean, Heiko, we're going to -- we're looking at all these opportunities in a holistic way. Yes, we have the capacity to do that right now. And so we're just looking at all our opportunities on how we best go forward. I don't know, Ross, if you want to add anything on that front? Ross R. Bhappu: Well, look, I agree. I think we're waiting to try to secure some offtake agreements. We also have a number of different options on financing, and we're just trying to run those to ground, Heiko, and do the best thing that's -- do what's best for shareholders on utilizing the money that we have in the bank right now. Heiko Ihle: And then just one quick clarification on your preliminary guidance for next year. It says there you expect to sell between 620,000 and 880,000 pounds with the long-term uranium sales contracts. Where is that delta between the 620,000 and the 80,000 come from? Is that a timing? Is that a pricing issue? What exactly could make it go from one end to the other end of that range, please? Mark Chalmers: It's really the flex up or flex down, is what that is, Heiko. Heiko Ihle: So it's purely your choice. Mark Chalmers: No, no, that's a selection of the contracts. So I know some companies have said they're not going to do flex up or flex down. We have. It doesn't really bother us too much because we're -- a lot of these things are evolving as things progress. So that flex up, flex down. We're still looking for homes, whether it be spot, midterm, other contracts for the future. So if you look at -- if we're up at 2 million pounds of uranium production, thereabouts, 1.5 million, 2 million, and we've currently got that kind of contract portfolio, you can see we have a lot of headroom there for doing other arrangements as we see fit. Operator: Your next question comes from the line of Joseph Reagor with ROTH Capital Partners. Joseph Reagor: So I guess first thing on the rare earth separation plant at White Mesa, I know you guys have floated a cost of $300 million to $500 million, but there hasn't been a lot of like ranges put on IRR or NPV for this project. When do you think we'll get those numbers? And then as we're leading up to that, is there a range you're comfortable putting on that so we can start to try to build these into our models? Mark Chalmers: Well, Joe, first of all, thanks for asking the question. We're really on the cusp of getting a number of these feasibility studies completed. One is for the Phase 2 separation plant. We're also completing the feasibility on the Toliara project and also getting the final investment numbers for Donald. And with that publicly disclosed, you're going to have all the information you need to figure out what all those costs are going forward. When it comes to the Phase 2 processing plant upgrade, we are adding -- we've added -- since those earlier estimates, we've been adding a lot of additional infrastructure including the ability to recover heavies. And so some of those costs are going up, but the actual facility is actually becoming more capable to do more things. So we expect to have, again, all these studies completed by the end of the year and then the dots can be connected with certainty because they will be done by third parties or signed off by third parties, fresh and updated to give you the most recent information to make your calculations on. Joseph Reagor: Maybe a follow-up to that then. Would it be fair for us initially to assume that the economics are roughly similar to what we see for this kind of thing historically, where CapEx and NPV are roughly equal and IRRs are in the high teens, low 20s? Mark Chalmers: Look, I don't want to really overspeculate until those studies are completed. But we believe that what our plan, our strategy with the multiple assets we have is going to deliver a very low cost compared to our peers option for producing these multiple rare earth oxides and some of these other critical elements. So we're very confident that our focus on monazite is going to be a very attractive and low-cost opportunity for our shareholders going forward. Joseph Reagor: One other thing on the uranium production side, you guys kind of gave guidance for Q1 only. And is this to say that mining at Pinyon Plain is going to wrap up and then the mines to go back on care and maintenance or just that you're not comfortable giving a guide yet for next year? Mark Chalmers: The main reason that we've only given guidance into part of 2026 is that we have a rare earth plant as part of the White Mesa Mill in that Phase 1, where we share the mill. And we're also doing trade-offs on how much rare earths we have to process versus uranium versus our ability to stockpile. For example, when we process the Pinyon Plain or, we're going to keep mining Pinyon Plain, we'll put it out in the yard, and it will be stockpiled for future processing. And that may be extending that run in 2026, but we're also giving ourselves the option to be able to recover both lights and heavies later in the year, if need be. So that is the reason why we haven't gone too far out, but we will have, and we do have -- frankly, we do have enough mining capacity and pounds that are coming out of those mines to keep running that mill if we elect to do so on uranium only. Operator: Your next question comes from the line of Nick Giles with B. Riley Securities. Nick Giles: Maybe starting on the uranium side. You mentioned blending Pinyon Plains higher-grade ore with LaSalle's lower-grade material through early '26. So can you quantify the margin differential between Pinyon Plain as a stand-alone campaign versus the blended approach? And then just given Pinyon Plain's superior economics, I mean, why wouldn't it make more sense to process higher-grade ore from that asset now while spot prices are above kind of the $75 level and preserve the LaSalle material for potential toll milling arrangements further down the road? Mark Chalmers: Yes. Look, it's a combination of things. I mean the Pinyon Plain is obviously absolutely our lowest cost source, with the exception of on occasion with some of the alternate feeds can be lower. And we look at how -- what feeds we have to process, we have the ability or will have the ability in 2026 to run just Pinyon Plain ore alone. We've made some modifications in the mill to do that. But also when we look at like towards the end of this year, we have -- and we need to do some blending to cut the grade down to some extent. The LaSalle complex -- and right now, we're not recovering the vanadium, okay? So when you look at the LaSalle complex, Pandora, our costs are, say, in the 70s, low 70s, recovering just uranium, but not recovering the vanadium. The vanadium gets put out the tails. We can bring the vanadium back at a later date. And so when you blend in those costs with Pinyon Plain and alternate feed, we can still come up with a very, very attractive combined production cost at those sites. But I believe that where we are with our processing is we're going to push the Pinyon Plain as much as we can. We'll complement alternate feed and La Salle, looking at that blended cost, but we're also likely going to be gaining inventory of mined unprocessed material this year and going forward, we should have a material amount of unprocessed ore at the mill that will be ready for processing at whatever rates we really choose up to complete design capacity of the White Mesa mill as we get Phase 2 rare earth circuit online in due course. Nick Giles: Maybe switching gears. You've signed the MOU with Vulcan could lead to an offtake agreement for downstream magnet production. I mean I think we'll be getting something on the product validation front in the near term. But can you just remind us what really the critical steps beyond that validation would be and kind of how that plays into commercial production decisions later in '26? Mark Chalmers: Yes. Well, these various groups that are looking for are oxides Initially, it's about the validation. And after that, it is working together to come up with potential offtake arrangements, pricing, whatnot, which we really aren't at that stage yet. I mean we are in some initial discussions on those fronts, but we haven't really advanced those. So as you are aware, between POSCO, Vulcan, and we're talking to others, it's pretty dynamic at this point in time. And -- but we haven't really secured any binding agreements for offtake at this moment. Operator: [Operator Instructions] Your next question comes from the line of Tatiana Lauder with Merger Markets. Tatiana Lauder: I just wanted to speak to the excitement around the Toliara acquisition. And the statement earlier that you guys are always looking at value-accretive opportunities. I wanted to ask what those opportunities might look like and what your forward-looking appetite to expand via acquisitions on any part of the uranium supply chain would be or if there's any excitement around some bolt-ons, divestitures or JVs? Mark Chalmers: Yes. Look, we look at every opportunity on its own. I mean we've expressed our desire to do further integration and from one aspect, but we're also looking at having additional feed and diversification of our feed as we go forward. So I think what you're seeing is when you look at the market and the people that are in the business, whether it be heavy mineral sands, rare earths or uranium, they're seeing our -- the strength that we have, the momentum that we have, and it's really a unique market. The world is wanting an integration story of scale. And that is what we're building. And there are companies that routinely come to us and trying to see how they can potentially join with us in different ways. It could be a number of different options on how they might be able to join us. And so we look at them on their merits. So all I'm saying is we will look at each opportunity opportunistically and see how that fits with our strategy and go from there. But I think that when you look at the market cap that we have and the momentum we have, it's very attractive for a number of these parties that are kind of isolated in a small portion of the business, and they don't really have that critical mass. And I'll ask Ross to say a few things on that front, too, if he-- Ross R. Bhappu: Yes, Tatiana, it's a great question because there's so much activity going on in the market right now. I'd say we're looking at probably 2 dozen different opportunities on our plate that are very potentially opportunistic. And so to Mark's point, I think we're going to remain opportunistic. We've got a lot on our plate with our own assets. But that being said, we're always going to look for unique and good opportunities to bolt on to what we have. So there's no shortage of those, and the key is finding ones that are going to be accretive and good value for us. And I would just add that, that both in uranium and rare earths tied to mineral sands. So monazite is really critically important. Tatiana Lauder: It sounds very exciting. Were most of those 2 dozen opportunities just around traditional mining or anything around uranium extraction or other parts of the supply chain? Mark Chalmers: They can be anything really. I think as a general rule of thumb, I'd say most of them are more rare earth oriented, but they can be different things. I mean, again, we've got the infrastructure, we're processing uranium. There's people that would like to have us purchase their ore, the same thing and whether it's monazite producers, heavy mineral sand producers, they're just seeing that momentum and capacity that we've established over the last few years. Tatiana Lauder: And how soon do you anticipate going back out to the market? I know you guys just did the $700 million fund raise that was oversubscribed. How soon should we expect to see you guys going out again to raise more capital? Mark Chalmers: Look, we're in a strong position right now. And you look at our balance sheet, you look at the convert, you look at the building revenue from uranium, we're in good shape. So I'm not going to speculate on how soon we're going to go out to the market again. But again, we're only going to go out to the market whenever that is, when we think it makes sense. And we think it made sense to go out to the market on the convertible, and it was a real successful execution. We're very proud that we were -- Goldman Sachs took the lead on that, and we couldn't be happier with the outcome. Operator: Your next question comes from the line of Eric is a retail investor. Unknown Analyst: So I had a broader question. Given that this current administration is a lot more active about making strategic investments in critical mineral producers, including the Pentagon's equity stake in MP or the DOE's investment in Lithium America or the even more recent Westinghouse partnership. I was just wondering if you guys were in talks with the administration regarding any sort of strategic partnerships? Yes. Mark Chalmers: Yes. Look, that's a loaded question. But I think everybody in these critical minerals sort of sectors, whichever one they are, are in D.C. talking to the administration on what support might be available or not. Look, we're no different. I mean, we spend a lot of time in D.C. We're not prepared to speculate on what the U.S. government may or may not do. But I do believe that really, we've been driving our own bus. We've secured multiple projects. We're producing a lot of the elements that the government is interested in, whether it be uranium, the rare earths, even some of the heavy mineral sands elements are also critical elements. And we are just basically moving forward on our own strategy. Does that mean that might be attractive to a government agency or potentially private entities that are interested in securing U.S. processed non-China material, I think it does. And that's where I'll pretty much leave it at that. So I just think we're positioning ourselves. We're playing the long game, and we'll see where we go from there. But yes, there are these investments that are going on. And just look at the assets we have and where we kind of fit into the picking the chain or food chain when you start looking at MP, Lynas, ourselves and others. Operator: Your next question comes from the line of Nick Giles with B. Riley Securities. Nick Giles: I just wanted to really go back to your long-term contracting philosophy on the uranium side. I mean you have fresh capital. Utilities are out there discussing supply concerns. So I think you're uniquely positioned to sign baseload contracts that would really derisk production. So can you just speak to what percentage of 2026, 2027 production capacity you could target for term business? And what would be the remaining spot exposure? Mark Chalmers: Yes. Look, again, a tough one to fully quantify. Generally speaking, with my experience in this business, if you're not highly leveraged, I generally say 50% of both one or the other is not a bad place to be because you're either 50% right or 50% wrong, and you're not overcommitted. And we obviously are not overleveraged here from a debt perspective with our projects at the moment. So -- but we also want to make sure that we don't have to put too much material on the spot market because it's really not really -- it's thinly traded, and we recognize that we don't want to hold back the spot price. So it's something that we discuss frequently, and it's how to position what new contracts that we're willing to commit to. I believe that the price uranium has to continue to increase because of the true cost of producing a pound of uranium currently isn't at that, say, $80 per pound-ish. Yes, we're just going to play it by ear. But also at the same time, as I mentioned earlier, we currently use the mill to process both uranium and rare earths. And we're also looking at how if we decide or elect to process more rare earths and we're not going to process uranium that we don't overleverage ourselves in terms of too many long-term contracts. So it's that balance that we're looking at. But I think you can safely assume we're going to have 50% of our production contracted in some form, maybe a little bit more, but not less. Operator: There are no further questions at this time. I would now like to turn the call back over to Mark Chalmers for closing remarks. Please go ahead. Mark Chalmers: Well, again, thank you, everyone, for your interest in Energy Fuels. It's been an exciting time for Energy Fuels. I mean you've looked at our share price and how it's appreciated over the last number of months. I think people are finally getting our strategy and the importance of our strategy. I don't think that we could ask for better timing when it comes to the realization by governments around the world that we've become overly dependent on Russia, China, and we plan to continue to execute. And so watch this space. We are focusing for the stars and doing things that are extraordinary. Operator: Ladies and gentlemen, this concludes today's call. Thank you all for joining, and you may now disconnect.
Operator: " Casey Kotary: " Scott Rajeski: " Oliver Gloe: " Andrew Carter: " Stifel Daniel Eggerichs: " Craig-Hallum Capital Group Michael Francis: " William Blair Bobby Schultz: " Baird Elizabeth Langan: " Barclays Charles Perron: " Goldman Sachs Shaun Calnan: " Bank of America Operator: Good afternoon, and welcome to the Latham Group Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Casey Kotary, Investor Relations Representative. Please go ahead. Casey Kotary: Thank you. This afternoon, we issued our third quarter 2025 earnings press release, which is available on the Investor Relations portion of our website. On today's call are Latham's President and CEO, Scott Rajeski; and CFO, Oliver Gloe. Following their remarks, we will open the call to questions. During this call, the company may make certain statements that constitute forward-looking statements, which reflect the company's views with respect to future events and financial performance as of today or the date specified. Actual events and results may differ materially from those contemplated by such forward-looking statements due to risks and other factors that are set forth in the company's annual report on Form 10-K and subsequent reports filed or furnished with the SEC as well as today's earnings release. The company expressly disclaims any obligation to update any forward-looking statements, except as required by applicable law. In addition, during today's call, the company will discuss certain non-GAAP financial measures. Reconciliations of the directly comparable GAAP measures to these non-GAAP measures can be found in the slide presentation that is available on our Investor Relations website. I'll now turn the call over to Scott Rajeski. Scott Rajeski: Thank you, Casey, and thank you all for participating in today's call to review our third quarter and year-to-date results as well as discuss our business outlook. This was another strong quarter for Latham. Net sales were up 7.6% year-on-year, significantly outpacing the U.S. in-ground pool market, which we expect to be flat to slightly below 2024 levels. Adjusted EBITDA increased by $8.5 million or 28.5%, a clear indication of the substantial operating leverage inherent in our business model. These results highlight Latham's competitive strengths, our diversified product portfolio and the actions we have taken to position the company for continued growth. I am pleased to report that our third quarter results showed progress across all of our key financial metrics. First, all 3 of our product lines experienced year-on-year growth. In-ground pool sales were modestly ahead on a year-over-year basis, reflecting positive momentum in fiberglass pools, partially offset by continued softness in packaged pool sales. Second, both covers and liners showed strong year-on-year growth with sales up 15% and 13%, respectively. This considerable growth has been driven by investments we have made to strengthen Latham's market position in both product lines. Third, this was another quarter of meaningful margin expansion. Gross margin increased to 35.4%, up 300 basis points year-on-year, and adjusted EBITDA margin increased to 23.7% for the quarter, up 390 basis points and with current tariffs fully mitigated. And lastly, we ended the third quarter in a strong financial position, providing Latham with the resources to invest in organic growth projects as well as considered accretive acquisitions. Several factors have enabled Latham to continue to outperform the U.S. in-ground pool market. We have been investing in building the awareness and adoption of fiberglass pools and auto covers, 2 key growth drivers for Latham and in developing a proprietary measuring tool to increase our liner and safety cover sales. And in the third quarter, we posted year-on-year net sales growth in each of our product lines within an overall market that we expect is flat to slightly down for the year. Our in-ground pool sales increased modestly, up just under 1% from last year, but we saw continued positive momentum in fiberglass pool sales, which are tracking to account for approximately 75% of our full year 2025 in-ground pool sales. Additionally, our initial analysis indicates that fiberglass pools is poised to gain another 1% of the total in-ground pool market to represent approximately 24% of total U.S. in-ground pool sales in 2025. Latham has the broadest lineup of fiberglass pool configurations in the market, the widest range of price points and the greatest array of specialty features, including spas and tanning ledges. Our marketing programs emphasize the cost advantages, fast and easy installation and lower maintenance requirements of fiberglass pools compared to concrete pools, and these attributes are resonating well with both consumers and dealers. Installers rank the lack of available workforce as one of the top 5 impediments to growing the business. And with fiberglass, they can install 6 pools in the time it takes them to build concrete pool now and with 2/3 fewer workers. This selling point has enabled us to convert a substantial number of dealers and installers so far in 2025, many of whom are located in our target growth geographies such as the Sand States. Sales of pool covers increased 15% year-on-year with a meaningful share of that representing organic growth in auto covers. In addition to the revenue synergies we are gaining from the 3 Coverstar acquisitions, this considerable growth is a function of very positive consumer response to the unparalleled safety that auto covers offer. As a reminder, Latham's auto covers are compatible with all types of in-ground pools and their significant cost savings from reduced water, energy and chemical usage enable auto covers to effectively pay for themselves within 4 to 5 years. Also, 16 states, in addition to a number of municipalities around the country have now expanded their pool safety regulations to allow auto covers to be used in place of traditional fencing around the pool, which results in additional savings for the pool owner. Liner sales increased 13% in the quarter. Our industry-leading lead times, together with the investment we've made in our measure by Latham tool and its successful rollout are making a substantive difference for our liner business. This AI-powered tool is proprietary to Latham and streamlines the measurement and quoting process for installers, ensuring a high degree of accuracy in less than 30 minutes versus 2 to 4 hours to do the measurements manually. The tool is fully integrated with the Latham order entry system, which allows installers to get real-time quotes and seamlessly submit orders and track their status. Year-to-date, 25% of the installers who purchased this tool were new to Latham, supporting our objective of leveraging this tool to gain share for our liner product line. It is also helping us gain share of the winter safety cover market. In September, we rebranded Measure as Measure Pro and also launched Measure Go, a new app that expands this technology's reach to more dealers by leveraging the iPhone LiDAR scanner to enable installers to accurately measure safety covers. As you know, Latham's expansion in the sand states is a strategic priority for us as it represents a significant multiyear growth opportunity. In the third quarter, we gained traction on several pillars of our growth plan, laying the foundation for future long-term market share gains. Dealer conversions in Florida, one of our initial target markets, have been in high gear. Year-to-date, I am pleased to report that our Florida sales have increased at a high single-digit rate and Latham is now represented in several master planned communities or MPCs in Florida. We continue to evaluate additional complementary strategies to further accelerate our growth in these MPCs, where we are already seeing increased awareness of the Latham brand and our product lineup. Additionally, we have established strategic partnerships with several custom homebuilders in Florida who are developing smaller scale, high-end communities that will feature Latham fiberglass pools. To sum up, this was another quarter of considerable market outperformance for Latham. With much of the pool building season behind us, we are very pleased with our year-to-date sales trends. We have strengthened our market leadership position in fiberglass pools, auto covers and in-ground pool liners and gained traction in the sand states. All of this has been accomplished while significantly increasing our margins and improving our financial ratios. Now I will turn the call over to our CFO, Oliver, for a financial review. Oliver Gloe: Thank you, Scott, and good afternoon, everyone. I'm pleased to report on our strong third quarter financial performance, which highlighted Latham's competitive strength and continued ability to outperform the market. Please note that all comparisons that I will discuss today on a year-over-year basis compared to the third quarter and first 9 months of fiscal 2024, unless otherwise noted. Net sales for the third quarter were $162 million compared to $151 million in the prior year, up $11 million or 7.6%. This increase was primarily driven by organic growth of 4.7% and reflected acquisition-related growth in sales volumes and a tariff-related price increase. All 3 of our product lines, in-ground pools, pool covers and pool liners experienced year-over-year growth in the period. These results demonstrate the strength of our diversified product portfolio as well as continued progress in our strategic growth initiatives, namely increasing the awareness and adoption of fiberglass pools and automatic safety covers, expanding our sales of in-ground pool liners and gaining traction in the important sand state markets. Across our product categories, in-ground pool sales increased by approximately 1% year-over-year in the third quarter. This performance was achieved against the backdrop of a U.S. in-ground pool market that we estimate will remain flat or decrease slightly, underscoring our ability to outperform the broader market. And this growth reflects continued momentum in fiberglass penetration as builders and consumers increasingly recognize the appeal and benefits of a fiberglass pool. Cover sales increased by approximately 15%, driven by higher adoption rates for auto covers, which are typically purchased alongside a new pool as well as revenue synergies from our 3 Coverstar acquisitions and strong consumer engagement with our marketing initiatives, including our recent partnership with Olympic Gold Medalist and pool safety advocate, Bode Miller, which highlighted the important role of auto covers in overall pool safety. Liner sales increased by approximately 13%, and this positive performance was driven by our industry-leading lead times and the increased adoption of our Measure by Latham tool. This year marks the second season of the Measure tool in use and pool builders are increasingly recognizing its accuracy and efficiency for measuring both pool liners and covers. Gross margin expanded by 300 basis points to 35.4% in the third quarter, primarily due to the accretive benefit of the 3 Coverstar acquisitions and the continued success of our lean manufacturing and value engineering initiatives in driving production efficiencies. SG&A expenses increased slightly to $28.6 million, approximately in line with the $28.3 million recorded in the prior year period. The stable level of SG&A spend this quarter included increased investments in sales and marketing initiatives and personnel as we move forward with our strategic growth initiatives, along with investments in new ERP infrastructure, partially offset by the timing of performance-based compensation. Net income was $8.1 million or $0.07 per diluted share, an increase of $2.2 million or 37.7% compared to the $5.9 million or $0.05 per diluted share for the prior year's third quarter. Adjusted EBITDA was $38.3 million, an increase of $8.5 million or 28.5% from last year's $29.8 million, and our adjusted EBITDA margin was 23.7%, a 390 basis point increase from 19.8% in the prior year period, including additional investments in marketing initiatives to drive share gains for fiberglass pools and order covers. Now turning to our year-to-date results comparisons. Net sales were $446 million, up 5.9% compared to $421 million. Net income was $18.1 million, up 60.3% compared to $11.3 million. Adjusted EBITDA was $89.4 million, up 16.7% compared to $76.6 million in the prior year. Adjusted EBITDA margin increased 180 basis points to 20% from 18.2%. Turning to our balance sheet and cash flow statement. We continue to maintain a strong financial position with cash of $71 million at the end of the quarter. Net cash provided by operating activities was $51 million in the third quarter and $40 million for the first 9 months. Total debt as of the end of the period was $281 million with a net debt leverage ratio of 2.3, considerably below the 3.0 in the year's second quarter, and we expect our net debt leverage ratio to approach 2 by year-end. Our disciplined capital allocation strategy remains focused on deploying capital opportunistically to position Latham for profitable organic and acquisition-related growth and to delever and further reduce our net debt leverage ratio. Our capital expenditures were $5.8 million for the third quarter and $16.2 million for the first 9 months of 2025. Moving on to our outlook. With the peak pool building season now behind us and based on our current visibility through year-end, we have narrowed our guidance ranges for net sales and adjusted EBITDA and revised our CapEx estimate for 2025. Our net sales guidance range is now $540 million to $550 million, representing 7% year-over-year growth at the midpoint, and our adjusted EBITDA range is now $92 million to $98 million, representing 19% year-over-year growth at the midpoint. We've also revised our CapEx estimate to a range of $22 million to $24 million. With that, I will turn the call back to Scott for his closing remarks. Scott Rajeski: Thanks, Oliver. As I mentioned earlier in my remarks, we expect 2025 new U.S. pool starts to be flat to slightly down compared to 2024. Within this challenging industry environment, we are very pleased to be able to provide guidance of 7% sales growth and 19% adjusted EBITDA growth at the midpoint. Looking ahead, we are confident that increased fiberglass pool and auto cover adoption will enable Latham to continue to outperform the in-ground pool market. And as we have noted, when new U.S. pool starts return to 78,000 per year, meaning when they return to their 2019 level, our new structurally changed business model should enable us to achieve about $750 million in net sales and $160 million in adjusted EBITDA. This would represent more than double our 2019 revenue and 2.5x our adjusted EBITDA at the same volume of new U.S. pool starts. Operator, I would like to open the call to questions. Operator: [Operator Instructions] The first question comes from Andrew Carter with Stifel. Andrew Carter: First question I wanted to ask is in terms of kind of the upstream metrics you have from leads, consumers, contractor, anything like that, what have you seen as you've moved through the quarter and perhaps customers have started to digest tariff costs, the incremental uncertainty? Scott Rajeski: Andrew, this is Scott. I think leads have been a real strength of ours throughout the entire peak pool building season in 2Q and 3Q. And I think as we talked on one of the last calls, we did our first national DIRECTV campaign, and we got really phenomenal response off of that. I think exiting third quarter, we're tracking well ahead of all the leads we generated full year last year, and we were up significant double, if not triple digit year-over-year through several of those periods. So the interest, the want for pool and everything is out there. I think what's still lagging is the confidence to make the ultimate pool buying decision based on tariff uncertainty and I'd say interest rate uncertainty. But clearly, we've got a lot of leads and demand to work from that we've been pushing to our dealers. I think that's kind of what really helped us have 5% organic growth here in the quarter. Andrew Carter: Second question I would ask then getting to kind of the liners performance, up 17%. That's just -- there's 2 businesses to that. There's, of course, the replacement business and the new construction. On the first slide, is replacement now starting -- in this category starting to hit a cadence where some delays are starting to be caught up? Or is that category still bogged down by deferrals? And then when you say new construction down -- flat to down, I would assume the kind of package pools, the vinyl underperforms that. So could you just add some context to the overall liners performance? Is it -- I'm sorry, is it remodel catching up? Or is it just all really a function of your market share gains? Scott Rajeski: Yes. Andrew, I'd say it's a combo of the 2, right? So one, I'd say, I think with the Measured tool out there, we've seen some really nice share gains and pickup in the replacement side of the house for in-ground vinyl liners. The flip side is with the lower end of the market on, let's say, new vinyl liner pools being probably down more significantly than, let's say, the higher end of the market. A lot of the dealers who play in that space will focus on repair, replacement, remodel of existing pools renovating the liners for homeowners. And I think we've done a really nice job getting share gains out there, as I said, right upfront, bringing more dealers into that type of the category. And again, if you're a homeowner and you've got a pool and your liner has failed or just looks awful, you're going to make that discretionary spend to kind of get your pool functional again for the season. So we're really happy with the progress we've seen there. And on the new construction side, again, I think lower end of the market, which is more the vinyl side of the world, that's just still been a little bit tough and been down out there and completely different than what we see in the fiberglass side, where, again, higher-end consumer continuing to see good share gains there and the consumer wanting that fiberglass pool in the ground faster than other pool types. Operator: The next question comes from Greg Palm with Craig-Hallum Capital Group. Daniel Eggerichs: This is Danny Eggerichs on for Greg today. I think I'd like to just start kind of maybe broader from a geographical perspective, how you saw demand kind of progress throughout your geographies throughout the quarter? And how is that different from a few months ago? And where are we seeing kind of outperformance, underperformance? Scott Rajeski: Yes. Look, I'd say it's been pretty consistent throughout the entire season. And what I would say is strength throughout most of the country, Canada, Northeast, Midwest, Southeast for us, we've been really happy with what we've seen in Florida despite a challenging environment down there with what some of the permit data shows. I think the 2 negative spots will continue to be Texas and California. I think others have talked about the difficulty in those 2 markets. they've been tough. But rest of the country, I'd say pretty consistent and strong throughout the entire build season for us. Daniel Eggerichs: Got it. Maybe if we can double-click on Florida there then. You mentioned your work with MPC. So maybe just a little more color on how exactly that progressed throughout the quarter. And then also, you made some comments on the strategic partnerships with a few custom homebuilders in the region. Just curious on what that entails and maybe whether or not that can be kind of replicated in other states going forward and part of the broader strategy. Scott Rajeski: Yes. Look, we're really happy with where we are in Florida, again, a little bit of a tough market down there. But I think that the team has been very focused to get into these MPCs, establish the relationships, whether we're going at with -- by ourselves or with some dealers in certain locations. I think the number of MPCs we've entered into is tracking probably ahead of what we had hoped for coming into the year. I think the team has done a really, really nice job targeting some of these smaller high-end custom homebuilders who really don't want to get bogged down on the pool installer build side of the equation. So we partnered with several of them, again, smaller communities, 15, 25, 30, 35, 40 homes. They're not these massive 1,000 type home communities. But our view is that it gives us a presence in these communities, gets more people touching feeling fiberglass and then the hope would be as the national guys start to see that regionally in some of these markets with these adjoining communities, that will help to drive the acceleration with some of the larger homebuilders out there as we continue to drive it. And I think, look, we continue to learn this market, what will work and what won't work. I think we've established some really strong relationships with local installers and builders. Again, we've had several down there that have been really, really great builders for us. We're trying to bring in some new guys into the industry, into the business with some unique partnerships. And I think we're really happy where we sit. And look, this is a long-term play for us getting in there. I think we've talked about high single-digit kind of growth numbers in Florida season to date. So like I said, I'm really pleased, really happy, and we're really just starting to scratch the surface with all the things we can do here. Operator: The next question comes from Michael Francis with William Blair. Michael Francis: This is Mike on for Ryan. I wanted to go a little deeper into Florida there. I would love to know if you think your outperformance there is largely a product of being in MPCs that are building at higher rates? Do you think you're taking much of share even in communities where the trends are following what new housing is doing overall? Scott Rajeski: Yes. Look, I think it's the presence in the MPC. If you look at some of the permitting data and where housing is tough, it's more in the coastal areas, which is probably the higher-end concrete side of the market. I think the one surprise, and I probably should answer that to Danny's question in Florida. The one thing I think that we've been really, really happy is the number of concrete dealers we've converted over to fiberglass I think as they see and feel and we see more labor challenges in the market and the number of people it takes to install or, let's say, construct a concrete pool in the field, they're realizing they can get a fiberglass pool in the ground with a lot less labor a lot faster for themselves, for the homeowner and probably make a little bit more money productivity-wise. So I think that's been good. I think we have seen some share gains with dealers from some of the other folks in the industry. But again it's a combination of kind of all of the above, just targeting these new MPCs where there's a lot of homes in the ground with no pools and a lot of new phases of those developments coming online. And like I gave you a good stat that was interesting. We just did a big Halloween event in Babcock Ranch. I know we always tell Babcock, that's really the home base of where we've started to push. Over 1,000 people stopped by the Latham booth during the course of that event, inquiring about pools, talking to our sales reps who are there on the ground. It just shows you the power of being there and having a presence in the local communities, driving the awareness, which eventually, hopefully, those will turn into future pool sales for us. Michael Francis: Another one for me would love to know where price landed in the quarter and also get an update on tariffs. Any additional costs coming through? Or has that been fairly steady? Oliver Gloe: Yes. Let me take the price question first, right? So as you might remember, we implemented a price increase primarily addressing tariffs in June. So price in the quarter was actually up by about $3 million. And then moving on to the tariffs. You might recall from prior calls that we had a tariff exposure of about $20 million, supply chain-based mitigation, $10 million. And then we, as I said, implemented that price increase in June with an annual rate of about $10 million. Knowing that the environment has been dynamic in Q3, probably is going to continue to be dynamic as we go forward. That net tariff exposure net between the tariffs and then our supply chain-based mitigation over the last weeks, probably months has still remained at that $10 million, right? As some tariffs go up, we have reacted on the supply chain side, moving things around between suppliers, geographies, plants. But that net really has stayed at about $10 million. And that $10 million, we have covered with that price increase in June. So again, knowing that it's probably going to stay dynamic for a while, at least at this point in time, everything we know, we feel comfortable where we are, having mitigated the 2025 impact and at least as of today, also the run rate impact going forward. Operator: The next question comes from Bobby Schultz with Baird. Bobby Schultz: Maybe for Scott, bigger picture here, you guys have stated that fiberglass has taken about 1% of market share in the in-ground category over the past few years and expect to do so again here in '25. And just given your fiberglass market share and your evolving geographic mix with the investments you're making in the sand states and increasing dealer awareness, is there room for that 1% number to accelerate in the coming years, just given all the different growth initiatives you have going on? Scott Rajeski: Yes. Look, I think kind of a little bit tough question because I think our view has been the 100 basis points a year has kind of been what we've demonstrated in some years, a little bit more as pool starts will recover, let's say, through the COVID years. I think what the balance has to become is if the lower end of the market starts to pick back up, the vinyl consumer jumps back into the market, how would that impact the number. But clearly, we feel strongly that the 100 basis point increase is kind of what's embedded in that long-range outlook with pool starts returning to 79,000 with the 750 and 160 number we've been talking about now for almost a year with that long-term view. But look, as we sit there and you just do the math, Bobby, right, 75% of pool starts roughly in the sand states, little presence. As we gain more and more traction there, you could argue that there could be and should be an acceleration of that for all of us in the industry. Bobby Schultz: Got it. And then one for Oliver here. It looks like SG&A for the full year will on pace to step up. Maybe how should we think about SG&A spend into the fourth quarter and then maybe into next year, assuming maybe the market is relatively stable from a new pool build perspective? Oliver Gloe: I mean let me walk you through this year. From a comp perspective, you saw us stepping up SG&A primarily with an eye on the sand states sales and marketing kind of midyear last year. So therefore, the first 2 quarters of this year, you saw a sizable year-over-year increases. And just because that's now in our base in 2024 in the third quarter, SG&A has been flattish. I don't expect that to change a lot in Q4 either. And then as we think of going forward, we're going to continue to invest in our position in the sand states and step up our sales and marketing investment as we see the returns, right? So I think that journey is going to continue. Operator: The next question comes from Matthew Bouley with Barclays. Elizabeth Langan: You have Elizabeth Langan on for Matt today. I wanted to jump back to price. I know you had kind of given some comments around price increases this year relative to tariffs. I was wondering if you could talk about your pricing strategy going forward a little bit. Are you planning to announce an annual increase? Or is that something that you're going to kind of reserve in case you are seeing a higher tariff rate into next year? Oliver Gloe: I think the -- at one point in time, we will hopefully be able to go back to kind of a normal cadence of an annual seasonal increase that usually is announced in the winter break for the new season. And obviously, over the last few years, you've seen inflation, you've seen tariffs, so we got off that cadence a little bit. But assuming that things will normalize, then we will go back to kind of that annual seasonal increase. Elizabeth Langan: Okay. And then is there anything that we should keep in mind in regards to orders or leads in terms of stocking and demand through the end of the year and into early 2026? Or if you have any early thoughts on the directionality for pool starts next year, that would be great. Scott Rajeski: Yes. Look, I'd say probably, Elizabeth, too early to kind of get a feel for '26 at this point. I think as we've said the last several years, we've been at a few conferences so far over the last 2 or 3 weeks. We've got several more upcoming over the next few months here. That's when we'll really gather the intel from our dealers, from the builders in terms of what they're seeing and feeling for backlogs out into 2026. Look, I'll still say we're kind of in this trough where plus or minus a few percent on a 60,000 or 62,000 pool start number is just too hard to call, and it's probably noise in the data that [ PK ] typically publishes. So it's really hard to call a number directionally. And I think as you guys are all aware, right, 4Q is the typical wind down of the season. I think order rates have continued fairly strong as we're rolling through what's left of our winter safety cover season. That's winding down here as we kind of approach the Thanksgiving holiday. And then I think things will be kind of shutting down for the season once we kind of get into early to mid-December and dealers kind of take that break. But it's been pretty consistent through the entire season from an order rate standpoint. We're really happy with what we've seen out there. I put this winter safety cover season similar to liners, a little bit of a later start. liners ran a little longer, thus the great liner performance, slower start to winter safety covers because folks are trying to get pools in the ground in 3Q. As the weather is now really starting to change, especially here in the Northeast, we've seen a nice acceleration of that winter safety cover business, orders staying strong and just we just want to wrap up Q4 here on a high note and kind of get to the midpoint of the guide numbers that Oliver mentioned in the earnings call there. Operator: The next question comes from Susan Maklari with Goldman Sachs. Charles Perron: This is Charles Perron in for Susan. First, I'd like to talk a little bit more about some of the productivity initiatives. It was great to see the continued benefit to gross margin from those lean manufacturing and value engineering efforts this quarter. I guess, against that, how do you think about the path for future savings here? And can you unpack some of the initiatives that came through over the course of the quarter this year? Oliver Gloe: Can you please repeat the second part of your question? Charles Perron: Just can you unpack some of the initiatives that came through in those results? Oliver Gloe: Yes, perfect. So first of all, we are very pleased with our gross margin development in the third quarter, 300 basis points up, and that came pretty equally through lean value engineering, and that's obviously sponsored by some of the volume leverage that we saw in the quarter and then [ Coverstar ] Central was the remainder here. Like I said on prior calls, $2 million to $2.5 million should be our quarterly contribution. So actually a little bit more. It was about $3 million, again, driven by volume in the third quarter. And those lean and value engineering improvements, these are structural improvements to our cost base. They're here to stay. They're in our run rate. We'll be a little bit on to that in future quarters. And I would say for the foreseeable future, that $2 million to $2.5 million is probably a good assumption to build into the model. Charles Perron: Got you. That's good color. And second, I want to switch to capital allocation. I think in your prepared remarks, you mentioned that you approach the 2.0 net debt-to-EBITDA leverage target by year-end. How do you think about that leverage going forward? Where is your -- what level are you comfortable with in terms of target? And then when you think about your growth initiatives, including M&A, how comfortable are you with M&A activity going forward? And what is the pipeline that you see currently right now for the business? Oliver Gloe: Yes. First of all, with now EUR 71 million in the bank as of quarter end, nearing 2 at the end of the year, very, very pleased with, a, the cash generation of this business and then how the balance sheet is managed. With 2, with a debt-to-EBITDA leverage ratio of 2, and we certainly have some dry powder to execute our capital allocation policy. We have done that very consistently. And the 3 key pillars are investing in the business. You saw stepping up CapEx this year. That's investing in the sand states models for pools that resonate, especially in the sand states, these are smaller rectangular pools than debottlenecking our 2 facilities in the sand states, Oklahoma, Florida. So that's where additional focus has gone into. From an M&A perspective, you mentioned we are acquisitive. We've done historically about 1 acquisition a year. We've done 3 over the last 13, 14 months, and I expect a certain M&A activity going forward as well. And then lastly, opportunistically, we've paid down debt, right, about $35 million over the last 2, 2.5 years. So I think very active and consistent execution of our capital allocation policy, which I expect us to continue to do going forward as well. Operator: [Operator Instructions] The next question comes from Shaun Calnan with Bank of America. Shaun Calnan: Going back to the SG&A. So the year-over-year growth in the first half was much higher than this quarter, and you still had the inclusion of acquisitions. So I'm just curious, did you guys slow any of the marketing spend? And if so, what drove that? Is it just the time of the year? Or did you feel like you guys had to just pull back a little bit there? Oliver Gloe: No, Shaun. So what's really driving the different comp to last year is that a lot of the increase you have in the basis, right? So we did 2 things happened about mid last year. We stepped up our investments in the Sand states, again, sales and marketing. And then we also bought the Coverstar Central business in early August. So that's in our base, base as well. There's always a little bit of timing around performance-based compensation, which we had was slightly a tailwind in this quarter. But from a seasonal spend, and I'll remind you that most of our spend in marketing is sort of ahead of the season, Q1, Q2. Q3 is a normal quarter and I tell that in Q4, there's nothing we changed from a seasonality standpoint that I'd mention. It's quite consistent our behavior this year versus last year. Now obviously, that's recognizing that we did step up our marketing spend mid last year. So it's more a question of the comp versus any different change in behavior or a different change in how we see our strategy. Shaun Calnan: Okay. Got it. And then, so I think in the fourth quarter, you guys had to change some plans around shipping out of the Kingston facility with all the tariffs and trade war stuff going on with Canada. Now that, that's kind of eased a little bit, is there any different intention with that facility? Are you able to ship back to the U.S. now? Or just any update there in general? Oliver Gloe: No. Let me start off by saying we are very pleased with our 9 facilities coast-to-coast network of fiberglass facilities with 1 plant in Canada that we have that flexibility to ship. We never [ shipped ] just because our fiber glass pools are USMTA compliant, therefore, never have been subject to tariffs, those Kingston [indiscernible] coming south. And so we did produce in Kingston and are planning to produce in Kingston going forward. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Scott Rajeski for any closing remarks. Scott Rajeski: All right. Thanks, Drew. Thanks, everyone, for participating in today's call. We look forward to seeing you guys at upcoming conferences and events. Most importantly, we want to wish you all a very happy holiday season. And just looking ahead into early '26 for the first time ever, Latham is planned to have a booth at the International Builders Show in Orlando in mid-February. And we hope to see many of you there as well as we showcase Latham right there in the heartbeat of the Sand States in Florida. Thanks for your time today, everyone. Have a good evening. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello, and welcome to Clover Health's Third Quarter 2025 Earnings Call. [Operator Instructions] Also, as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. Ryan, you may begin. Ryan Schmidt: Good afternoon, everyone. Joining me on our call today to discuss the company's third quarter 2025 results are Andrew Toy, Clover Health's Chief Executive Officer; and Peter Kuipers, the company's Chief Financial Officer. You can find today's press release and the accompanying supplemental slides as well as the company's most recent investor deck in the Investor Events and Presentations section of our website at investors.cloverhealth.com. This webcast is being recorded, and a replay will be available in the Investor Relations section of the Clover Health website. I'd also like to caution you that we may make forward-looking statements during today's call that are subject to risks and uncertainties, including expectations about future performance. Factors that may cause actual results to differ materially from expectations are detailed in our SEC filings, including in the Risk Factors section of our most recent annual report on Form 10-K and other SEC filings. Information about non-GAAP financial measures referenced, including a reconciliation of those measures to GAAP measures, can be found in the earnings materials available on our website. With that, I'll now turn the call over to Andrew. Andrew Toy: Thank you, Ryan, and welcome, everyone, to Clover's third quarter earnings call. There are 3 main areas I want to focus on today. Firstly, that our growth engine is running well, and we remain focused on growing sustainably and profitably. Secondly, taking everyone through the drivers of our lowered guidance for 2025 adjusted EBITDA profitability and what we're doing to address it. In short, we do see broad systemic utilization pressure, but this is also compounded by our growth. We feel we can address this, but it did hit us significantly in 2025 because of that growth. And thirdly, talking about our recently announced star ratings and how we intend to ensure we can grow profitably, whether at 3.5 or 4 stars. Overall, I want to say this, we missed our targets on both overall adjusted EBITDA and stars. While we will remain profitable and growing, these misses aren't at all acceptable to us. They do not capture our aspiration or bar for the company. We can and will make quick adjustments. The good news is that Clover Assistant remains incredibly strong as our core driver. Our CA managed returning cohorts improved year-over-year. CA also enabled Clover to be the top PPO in the country for the second year running on core HEDIS clinical quality scores. The bad news is that while we did plan for growth and utilization headwinds, we clearly didn't factor those in strongly enough or manage those tightly enough in the non-CA population, which definitionally includes the new members. So, those areas are where we're going to intensely refocus going into 2026, which I think is going to be a big year for Clover. Okay. Going into more detail. For the third quarter, we've remained adjusted EBITDA profitable on a wide network, while growing membership by 35% and revenue by nearly 50% year-over-year. That does meet our goal of profitable growth. Other plans which grew this much on the PPO have been pushed into retreat. That said, I want to note that we did originally enter this year intending to have significantly higher overall adjusted EBITDA even with the growth. Ultimately, this adjusted EBITDA pressure came firstly from the higher-than-expected proportion of new members and the fact that we didn't bring them under management as quickly as we originally planned. And secondly, we saw increased utilization across both medical expenses and supplemental benefits similar to others in the industry. I'm going to focus on the first, and Peter will discuss more on the second. On an adjusted EBITDA basis, our returning members continue to have a contribution profit, but this did not fully offset the dilution from our larger-than-expected new member growth. While we had anticipated this pressure from returning to growth, we captured additional market share as competitors retreated with the market disruption effectively accelerating our growth. This has led to reduced adjusted EBITDA profitability as the cost profile of first year members, which we see as a combination of marketing, commissions and first year MedEx, puts pressure on our results. For the full year 2025, we now expect to add roughly 44,000 gross new members within an expected year-end 2025 population of approximately 113,000 net members. This has had a meaningful impact on our 2025 adjusted EBITDA profitability as we are scaling from a relatively smaller base and new members are generally loss-making for us in the first year. That said, our cohort experience and strong historical retention demonstrates that this large new population will bring a larger contribution profit positive base of returning members in 2026 and beyond. We also expect 2025 to be the peak year for this kind of effect. In our modeling, with our latest cohort data, we expect that we will be able to continue growth and have meaningful adjusted EBITDA profitability starting in 2026. That was our goal for 2025, but we were extrapolating new member performance as this was our first year of significant growth. Now that we have that under our belt, we feel more confident in our views on 2026 and beyond. Ultimately, we believe the fundamentals of our business remain strong and the margin pressure we're seeing this year is driven by cohort dynamics. Each new member represents strong long-term value, but requires time to come under full Clover Assistant management. While that dynamic compresses margins in the near term, it's exactly what we believe builds the foundation for margin expansion and accelerated growth in the years ahead, where we anticipate rapid improvement in outcomes and cost performance in our cohorts. Said differently, our returning Clover Assistant managed members remain strongly profitable and are effectively funding this reinvestment in acquiring and developing new member cohorts. Our confidence in Clover's trajectory is rooted in a simple truth. We believe that our model delivers better Medicare Advantage results for more seniors. Clover Assistant is designed to identify and manage disease earlier, providing a multiyear improvement to total cost of care. When paired with our care delivery assets and the close partnership of our Clover Assistant using network providers, we see consistent medical cost management year-over-year. We're continually focused on increasing physician adoption and remain on pace with increasing our Clover Assistant coverage across the book with more than half of our new members already having received a Clover Assistant visit this year, which is consistent with our internal targets. The combination of strong retention, more members, more CA-engaged physicians, early disease detection leads to strong returning member cohort performance and reinforces the strength of our model and our ability to help manage conditions earlier and better for our members. Next, I'd like to discuss the current annual enrollment period. While it's too early to provide an AEP update in detail, I would preliminarily note that we remain on track to once again deliver strong above-market membership growth and retention within our priority markets. These markets are the ones where we have strong CA network coverage, an existing membership base and our home care capability. Our plan offerings reflect exactly what Clover stands for, low out-of-pocket costs, physician choice, and real value for seniors. While most of the industry is pulling back and narrowing networks, we've doubled down on maintaining a comprehensive PPO portfolio that prioritizes open access with stable, predictable benefits. We believe seniors deserve choice, access and simplicity, and our 2026 plans deliver all 3. Turning now to star ratings. We received a 3.5-star rating for the 2026 ratings year. This does not represent our aspiration. We want a 4 star plan. That said, let me start by explaining how our model is built to perform well even in 3.5-star payment years. Firstly, we do not view the star rating as an inhibitor for growth. Medicare eligibles are attracted to low out-of-pocket costs with wide physician choice. And based on our experience, we anticipate strong attraction to our plans on that basis, independent of star rating. We also don't perceive the star rating as a true measure of overall health care quality. Our focus remains on delivering meaningful improvements in care and outcomes for our members. And one way this commitment shows up is in our HEDIS results. Clover Assistant once again powered Clover to the top of the industry for clinical quality with a HEDIS score of 4.72 for our PPO plans, making us the highest performing PPO in the country on HEDIS measures. This reflects the consistent data-driven care delivered through our technology and physician partnerships, which continue to improve members' health in measurable ways. So while our focus remains on driving better patient outcomes, we believe that the current star ratings framework does not fully reflect the clinical quality of care our members receive. We continue to actively engage with CMS to advance how quality is measured and remain committed to working constructively toward a methodology that better captures true performance. Ultimately, though, we want a 4-star plan. We are walking through all areas that we underperformed on and making sure that we have plans in place, plans that also incorporate the significant growth that we have had and will continue to have. For example, while we were the top-rated PPO plan in the country on HEDIS quality, we were greatly let down on our star scores because of very low 1 and 2-star scores on our pharmacy measures. We are very focused here and are intent on improving our performance in this area going forward. Now, I'll provide a Counterpart Health update. The new organization continues to make strong progress expanding both the reach and capabilities of our technology. During Q3, we've rolled out major new capabilities such as integrated scribing and generative AI tools that help physicians better prepare for visits, reduce administrative burden, and stay focused on patient care. Also powered by CA, and as I mentioned earlier, we've achieved industry-leading clinical quality HEDIS result for the second year in a row, and we've made this capability available as part of Counterpart's new enterprise offering. And lastly, we're seeing good demand, and so we've expanded our go-to-market team and leadership to support new partnership opportunities with provider groups, health systems, and both regional and national payers. Together, these advancements further establish Counterpart Health as a leading technology partner for value-based care. The key for Counterpart is this. Since its launch last year, we have seen tremendous resonance with health plans because our technology provides a capability to them that they've never had before. This capability is to engage smaller independent doctors who typically manage around 20% to 30% of a given plan book. These doctors are often great physicians, but do not have the infrastructure to be successful in value-based care and almost no plan [ has a ] strategy to successfully engage them. Counterpart deployments have now shown in multiple states and for multiple customers that we can effectively serve this market, and we've heard that [ resonance ] with our target customers. We believe this remains a huge blue ocean opportunity for us and provides us the opportunity to bring our technology far beyond the reach of our owned and operated plans. In overall summary, our long-term trajectory is unchanged. Our technology is scaling as we aim to empower more and more physicians with Clover Assistant, and we're focused on growing our profitable returning member cohorts. We anticipate having a large contribution profit positive base of returning members in 2026 and beyond, which will fund future new member growth. This year is just the start of that arc. And while we have several areas we need to improve, I feel strongly we are on the right path. I'll now turn it over to Peter, who will walk through our financial performance in more detail and how we're positioning the business for adjusted EBITDA profitable growth in 2026 and beyond. Peter Kuipers: Thank you, Andrew. Before getting into the financials, I want to reiterate Andrew's comments that we remain confident on our long-term trajectory to achieve sustained growth and expanding profitability. Despite increased utilization and margin pressure from a higher-than-expected mix of new members relative to our returning base, our year-to-date underlying incurred medical cost trend, excluding pharmacy, for our entire population remained strong with a 4% increase year-over-year. We are pleased with the strong cost management, but this trend has run above our initial expectations. Combined with 35% membership and 39% insurance revenue growth year-to-date, we have maintained positive year-to-date adjusted EBITDA and adjusted net income. As we move into 2026, we expect to build on our profitability base with several clear tailwinds impacting our model, including strong member retention, our anticipated larger profitable returning member cohort, financial benefit from our increased payment year 2026 4-star rating, further enhanced and expanded Clover Assistant capabilities, our ability to increase PCP user adoption of Clover Assistant and continued operating leverage gains as we scale. We also expect to benefit from a favorable CMS Part C rate update and an increased Part D direct subsidy. Taken altogether, we believe that Clover is well positioned for above-market growth and increasing profitability through 2026 and beyond. Most importantly, we expect to benefit from the strength of Clover Assistant and our returning member cohort management as this year's large group of new members mature into returning members in 2026. Our data has shown meaningful improvement as members mature within our care model with roughly a 700 basis point improvement in MCR between year 1 and year 2 cohorts and a 1,400 basis point MCR improvement by year 3 on average. Notably, we deliver more contribution profit from our profitable returning member cohorts than our new member cohorts. Returning member cohorts during the third quarter year-to-date 2025 period have generated approximately $217 of contribution profit per member per month as compared to a negative contribution of $110 per member per month for the new member cohorts, respectively. For this reason, as new members mature into returning cohorts and we get more members under Clover Assistant-powered care, we are confident to deliver strong financial performance in the coming years. We also have conviction in our ability to deliver continued strong returning member retention in 2026. First, due to the continued industry disruption from competitor pullbacks that Andrew discussed. And secondly, we believe that our current 2025 retention rate remains industry-leading above 90%, reflecting the success of last year's AEP period and our ability to continually retain members. Both of these dynamics together reinforce our confidence to better manage next year's membership mix and continue improving profitability as our cohorts mature under Clover Assistant care management. Furthermore, our model is designed to perform profitably even in 3.5-star payment years with 4-star years serving as upside rather than a dependency. We continue to see strong member demand for our wide network PPO offerings with low out-of-pocket cost, and our HEDIS score of 4.72 demonstrates that Clover Assistant consistently drives top-tier clinical quality and outcomes across an open access PPO network. Taken in aggregate, driven by Clover Assistant and our differentiated model, our current view is that we expect to achieve full year positive GAAP net income in 2026 as our maturing, returning member cohorts and our technology-centered approach further enhance performance and expand margins. Now, returning to the third quarter financials. Clover's Medicare Advantage membership grew 35% year-over-year to over 109,000 members, delivering insurance revenue of $479 million, an increase of 49% year-over-year. Year-to-date insurance revenue was $1.4 billion, up 39% year-over-year. Next, I'll discuss the margin pressure we observed in the third quarter. Despite an elevated utilization trend and more new members compared to expectations, our year-to-date underlying incurred medical cost trends, excluding pharmacy, for our entire population remained strong with a 4% increase year-over-year. On an adjusted EBITDA basis, returning members continue to be accretive to contribution profit, although this impact was partly offset by a negative contribution profit from our new member cohort. Impacting this trend is stronger-than-anticipated intra-year new member growth as we are expecting to absorb more than 44,000 gross new members this year from a relatively smaller returning member base. This stronger growth was impacted by other plans dramatically shifting their offerings in 2025 by reducing benefits, shutting down commissions, and fully exiting markets earlier this year, resulting in lower new member core performance than initial expectations. Specifically, medical costs in the third quarter were impacted from unfavorable claims development related to the first half of 2025 date of service. We saw higher medical cost trends across inpatient and outpatient services related to a number of high-cost claims, outpatient oncology, and inpatient cardiac and surgical procedures. This is consistent with broader industry reports related to elevated hospital utilization in recent months. Importantly, we feel that we have adequately accounted for these trend developments in our updated 2025 guidance. Turning now to Part D. Comparing year-over-year performance is structurally difficult given the changes in the IRA this year. That said, the continued Part D pressures that we and others in the industry discussed last quarter, are higher versus expectations. We feel that we've performed well on Part D this year, but we expect it and intend to do better. In particular, we have seen pressure in branded and non-formulary pharmacy spend. For this reason, we have launched ongoing initiatives around medication reconciliation, generic substitution and care coordination to optimize Part D in 2026, while maintaining access, and we feel confident that next year's higher Part D direct subsidy will also help normalize the pressures across the industry. And lastly, we've seen some abnormal activity within both dental and DME that we're actively addressing and pursuing recovery and improvement activities for. We do not believe that this abnormal activity will persist into 2026. On a reported basis, year-to-date BER was 89.4%. This is a year-over-year increase of 880 basis points compared to the prior year period. That said, I want to emphasize that after normalizing for prior year developments in both reporting periods, the year-to-date BER increased by 400 basis points. Moving next to SG&A. We continue to execute well with cost discipline, generating strong operating leverage. Third quarter adjusted SG&A totaled $71 million or 14% of revenue, representing a 440 basis point improvement or reduction year-over-year. Year-to-date adjusted SG&A was $237 million or 17% of revenue, improving 370 basis points year-over-year. As discussed previously, our ongoing vendor contract reviews and negotiations with a focus on improved SLAs and benefits from pricing at scale are continuing. Our progress highlights the operating leverage we are achieving even as we continue to invest in growth, technology and higher quality care management. Despite the aforementioned margin pressures, we have achieved both positive adjusted EBITDA and positive adjusted net income year-to-date. This underscores the resilience of our model and our ability to manage costs effectively while scaling the business. Both adjusted EBITDA and adjusted net income for the third quarter were $2 million, each down $17 million year-over-year. Year-to-date adjusted EBITDA and adjusted net income remained positive at $45 million and $44 million, respectively. Our year-to-date adjusted EBITDA profitability, despite a higher proportion of new members relative to returning members, underscores the scalability of our model and our disciplined execution in managing our strong returning cohorts. That said, we do expect the elevated trend we've experienced during the third quarter to continue in the fourth quarter, along with typical fourth quarter Medicare Advantage seasonality. Moving on to the balance sheet. We ended the third quarter with cash, cash equivalents, and investments totaling $396 million on a consolidated basis, with $122 million at the unregulated subsidiary level. During the third quarter of 2025, cash flow from operating activities was $12 million. We expect that our cash balances will remain strong for the remainder of 2025, which will allow us to continue to operate from a position of strength as we invest in our growth model in 2026 and beyond. Importantly, we believe that we will continue to be self-funding as we execute on our growth strategy. Turning to guidance. We are revising our full year 2025 outlook to reflect the membership growth and utilization trends we've seen year-to-date. We are increasing our Medicare Advantage membership guidance to now average between 106,000 and 108,000 members, reflecting 33% growth year-over-year at the midpoint and continued intra-year growth this year. We are increasing our insurance revenue guidance to be between $1.850 billion and $1.880 billion, reflecting year-over-year growth of 39% at the midpoint of the range. We are improving our adjusted SG&A guidance to be between $325 million and $335 million. This represents adjusted SG&A as a percentage of total revenue of 17% to 18% and is an approximate 400 basis point decrease or improvement year-over-year at the midpoint of the range. This reflects our continued ability to gain operating leverage in our business as we grow. We are lowering both adjusted EBITDA and adjusted net income guidance to be between $15 million and $30 million. This primarily reflects pressures related to a greater proportion of new members relative to our returning member base and higher utilization trends. Lastly, we are updating our insurance BER guidance to a range of 90% to 91%, which reflects the elevated utilization trends we've seen this year as well as the impact of our strong new membership growth. Our view of the long-term trajectory of the business and our confidence in our ability to achieve sustainable and increasing profitability is unchanged. We expect a meaningful increase in profitability in 2026, driven by multiple factors. First, we anticipate strong returning member retention with continued improved cohort economics of our expected larger, profitable returning member cohorts, along with continued favorable performance from our year 3 and older cohorts. Second, a 4-star payment year for our PPO plans creates meaningful financial tailwinds as approximately 97% of our members are enrolled in wide network PPO offerings. Third, continued focus on increasing Clover Assistant coverage and PCP adoption and further investing in enhancing the platform's capabilities. Fourth, a focus on more cost-efficient growth channels. Fifth, a favorable impact from the Part C CMS final rate notice announced earlier this year as well as from the significantly higher Part D direct subsidy. Lastly, we expect incremental efficiencies from continued SG&A leverage and optimization across variable, fixed and growth expense categories. In summary, we continue to execute well against our long-term strategy. We are growing membership and revenue at an above-market pace while achieving adjusted EBITDA profitability year-to-date. Combined with our strong returning member cohort performance, Clover Assistant model differentiation, and multiple tailwinds, we believe that Clover is positioned well for meaningful adjusted EBITDA expansion in 2026 and beyond. Now, I'll turn the call back to Andrew for closing comments. Andrew Toy: In closing, despite margin pressure this year, we continue to deliver a stable underlying medical trend, high retention and strong returning profitable member cohorts. As such, we remain comfortable with our go-forward medical cost trend heading into 2026 and feel confident to deliver continued profitability as our flywheel will spin even harder next year when we expect to have a larger returning member base managed by Clover Assistant. Importantly, Clover Assistant continues to perform exactly as designed, helping physicians identify and manage disease earlier, improving outcomes and lowering costs over time. I remain excited about the potential we see for AI to improve the care received by our Clover members and all Medicare beneficiaries. I recently testified to Congress on AI in healthcare where I emphasized that AI when used properly, can be a powerful tool to drive clinical results and enhance members' access to personalized care. You can see this in our results. We recently published another clinical white paper highlighting how Clover Assistant helps PCPs provide better care for members in underserved communities. The analysis reveals more frequent identification of diabetes, CKD, COPD, and CHF among members from disadvantaged areas joining a Clover MA plan from another MA plan in the first year post enrollment. We also see the diagnosis occur at earlier clinical stages of diabetes and CKD. The analysis also showed that members with any of these diseases of aging who were seeing CA PCPs had less frequent hospitalizations and readmissions. These results reinforce that Clover Assistant not only helps improve outcomes across our plan, but also uniquely supports smaller resource-constrained practices in both urban and rural underserved regions, where better data and coordinated care can make the greatest difference. Taken together, our strong growth, cohort management, disciplined execution, and expanding technology capabilities, give us confidence in our ability to continue to achieve profitability in 2026 and beyond while growing above market. With that, let's open it up for questions. Operator: [Operator Instructions] Our first question will come from Jonathan Yong from UBS. Jonathan Yong: Can you guys hear me? Andrew Toy: Yes. Go ahead Jonathan. Jonathan Yong: Okay. Obviously, you got the elevated utilization in the quarter. Last quarter, you had pharmacy and dental issues, and now it's inpatient, outpatient alongside other supplemental benefits. I'm trying to frame out how we should think about 2026 from a BER perspective? Like, I understand that the stars will be better. These cohorts will mature, but at the same time, you're also going to grow what seems to be fairly significant. I'm fairly certain your benefits have gotten richer. So, how do you plan on -- is there a mispricing issue that may have occurred for 2026 given what's occurring here? Or are you fairly confident that this is encapsulated in your bids and that you won't see a problem in '26 given what you're kind of experiencing now with outsized growth and that seems to be the driver of the pressure here? Peter Kuipers: Jonathan, it's Peter. Let me answer that question. So, if you look at our earnings release and the prepared remarks, on a normalized basis, excluding prior year [ PPV ], the underlying incurred cost trends, excluding pharmacy, is around 4%. So, given the higher utilization trend that we see and also the higher mix of new members, we think that's a solid performance. Now, we -- like we said in the prepared remarks, we had expected to do better. So we'll work on that. For next year, I would say that, that cost trend roughly is baked into the bid as well. But that's just one part, right? We have a number of other tailwinds as well as the 4-star payment year, the rate notice on Part C, and of course, the direct subsidy as well on Part D. So -- plus that SG&A increased leverage, it doesn't impact BER, of course, but -- so we feel that, that's baked into our bit. And then also -- I would also say, like we said in the past, we're nuclear precise of where we do our marketing and target our growth. We're focusing on so-called priority markets that meet a couple of conditions. One, where we have a solid Clover member base already. We also have in those priority markets good coverage from the Clover Assistant perspective and home care perspective as well. So, we're targeting growing in the areas that we want to grow, and that should also help BER go forward. Jonathan Yong: Okay. And then just looking at your guidance here, I think if I were to -- just kind of putting the numbers together here, it looks like the BER does step up, but if I look at kind of the core MCR basis, it almost seems to imply that it actually steps down. I'm just trying to understand, is there anything specific for how we should think about 4Q? Or are you guys seeing anything specific that would seem to imply that it actually steps down? Or maybe my math is wrong here. Peter Kuipers: Are you looking at 3Q to 4Q, or looking at 9 months into the fourth quarter? Jonathan Yong: 3Q to 4Q because it looks like you did 89.5% in 3Q, and it seems to imply steps down. Peter Kuipers: Exactly. Yes. I think we can refer back to the prepared remarks in my section where we talked about essentially intra-year PPV from the second half impacting the third quarter. So, the real -- the way to look at is really averaging out the first 3 quarters to get to kind of like a baseline expectation for the fourth quarter. Operator: [Operator Instructions] Okay. Well, there are no further questions on the webinar. I'll now turn the call back over to Andrew Toy for any closing remarks. Andrew Toy: All right, folks. Thanks, everyone, for joining us today. Thank you, Jonathan, for the questions. We appreciate everyone's continued interest in Clover, and we look forward to updating you all on our progress in the quarters ahead as we go into 2026. Have a great evening, everyone. Thank you.
Operator: ” Henry Harrison: ” R. Banyard: ” Andrea Simon: ” Garik Shmois: ” Loop Capital Markets LLC, Research Division Operator: Good afternoon, and welcome to MasterBrand's Third Quarter 2025 Earnings Conference Call. Please note that this conference call is being recorded. I would now like to turn the call over to Henry Harrison, Senior Director of Corporate Financial Planning and Analysis. Please go ahead. Henry Harrison: Thank you, and good afternoon. We appreciate you joining us for today's call. With me on the call today are Dave Banyard, President and Chief Executive Officer of MasterBrand; and Andrea Simon, Executive Vice President and Chief Financial Officer. We issued a press release earlier this afternoon disclosing our third quarter 2025 financial results. This document is available on the Investors section of our website at masterbrand.com. I would like to remind you that this call will include forward-looking statements in either our prepared remarks or the associated question-and-answer session. These forward-looking statements are based on current expectations and market outlook and are subject to certain risks and uncertainties that may cause actual results to differ materially from those currently anticipated. Additional information regarding these factors appears in the section entitled Forward-Looking Statements in the press release we issued today. More information about risks can be found in our filings with the Securities and Exchange Commission, including under the heading Risk Factors in our full-year 2024 Form 10-K and our subsequent 2025 Form 10-Qs, which will be available once filed at sec.gov and at masterbrand.com. The forward-looking statements in this call speak only as of today, and the company does not undertake any obligation to update or revise any of these statements, except as required by law. Today's discussion includes certain non-GAAP financial measures. Please refer to the reconciliation tables, which are in the press release issued earlier this afternoon and are also available at sec.gov and at masterbrand.com. Our prepared remarks today will include a business update from Dave followed by a discussion of our third quarter 2025 financial results from Andy, along with our 2025 financial outlook. Finally, Dave will make some closing remarks before we host a question-and-answer session. With that, let me turn the call over to Dave. R. Banyard: Thank you, and good afternoon, everyone. We appreciate you joining us for today's call. Our third quarter results reflect disciplined execution in a persistently challenging demand environment and proactive management of evolving trade dynamics. Amid these conditions, our team made significant progress on our integration initiatives and has continued to deliver for our customers while strengthening MasterBrand's foundation for both near-term stability and long-term growth. In the third quarter, we generated net sales of $699 million, a 3% decrease compared to the same period last year, consistent with our expectations. The decline reflected mid- to high single-digit end market contraction, partially offset by the continued flow-through of previously implemented pricing actions and share gains in our distributor and builder channels. Demand across our retail and dealer channels remained soft, particularly in stock cabinetry, while semi-custom offerings performed relatively better as consumers with discretionary income continue to seek value within the midrange of the portfolio. We delivered adjusted EBITDA of $91 million compared to $105 million in the third quarter of last year, representing an adjusted EBITDA margin of 13%, a 160 basis point decline year-over-year due to lower volume and related fixed cost absorption as well as tariffs, partially offset by continuous improvement efforts net of inflation, continued net average selling price improvements and Supreme synergies. While margin was slightly below expectations, we view this as a solid performance in a difficult operating environment. Free cash flow for the quarter was $40 million compared to $65 million in the same period last year, driven by lower net cash provided by operating activities and higher capital expenditures related to the integration of Supreme. We continue to expect free cash flow for the full-year to exceed net income, consistent with our long-term objectives of balancing investment in growth with strong cash conversion. Turning to our end markets. While conditions remain challenged, they were generally consistent with our expectations. In new construction, single-family housing starts were down mid- to high single digits as affordability and buyer confidence remain constrained. Despite this backdrop, our new construction sales outperformed the broader market, reflecting the strength of our broad product portfolio and consistent service execution, underpinned by superior cycle time reliability, effective supply chain coordination and proactive design and specification support, all of which customers consistently cite as key differentiators. Looking at the remainder of the year, we continue to expect overall new construction end market demand to be down mid-single digits on a full-year basis. However, through our strong builder relationships, reliable service performance and focused execution, we are positioned to continue to outperform the broader market. In the repair and remodel market, serviced by our dealer and retail customers, demand remained choppy as elevated total project costs, low existing home turnover and low consumer sentiment continue to weigh on large discretionary projects. Our repair and remodel business was down mid- to high single digits year-over-year, which was aligned with the broader market and our expectations. The impact was most evident in entry price stock cabinetry and digital retail channels where softer project demand weighed on volume. In contrast, mid-tier semi-custom products delivered stronger performance, benefiting from consumers trading down from premium offerings and placing greater emphasis on value amid the broader macro backdrop. This emphasizes the strength of our multi-tier product portfolio. We continue to expect the repair and remodel market to be down mid- to high single digits for the full-year as consumers delay larger home renovation projects amid ongoing affordability pressures. Turning to Canada. Our third quarter performance was down mid-single digits, consistent with the market and in line with our expectations. Housing affordability remains a persistent challenge with elevated prices and limited resale inventory continuing to constrain buyer activity. We continue to expect full-year Canadian end market demand to be down mid-single digits year-over-year. We anticipate the market more broadly to be down mid- to high single digits for the full-year 2025. As we look further ahead, we currently expect demand across both new construction and repair and remodel to remain subdued through next year with gradual improvement anticipated in late fiscal 2026 or early fiscal '27. However, we recognize that trade and market conditions could rapidly change, potentially shifting our outlook. In the meantime, our focus remains on servicing our customers, aligning production with demand and controlling costs, positioning the business for growth when the market does return. Turning to the current trade environment. The tariff landscape has evolved meaningfully since our last call and remains a major area of focus for us. As many of you know, the Section 232 lumber tariffs took effect on October 14, and we are diligently evaluating the implications of the 25% tariff and impending 50% tariff on kitchen cabinets, bathroom vanities and related products. This said, we've been contingency planning for several months in anticipation of these potential changes. Our teams across sourcing, manufacturing and pricing are executing a coordinated mitigation strategy as we refine our assessment and work with the administration to understand certain specifics of the Section 232 lumber tariffs. While these tariffs will introduce incremental costs, we believe MasterBrand is well positioned to navigate them effectively. As discussed last quarter, we've taken steps to enhance our sourcing flexibility and are actively engaging suppliers to minimize exposure. We are working through various manufacturing footprint and operational adjustments to mitigate the impact of tariffs and best serve our customers in growth regions. Finally, we are maintaining consistency in our surcharge methodology to provide pricing transparency for our customers as the landscape continues to evolve. While we remain confident in our mitigation plans, we continue to monitor potential indirect impacts on consumer demand and housing affordability, which are inherently more difficult to quantify. Importantly, the MasterBrand Way, our structured data-driven operating system enables us to adapt quickly through rapid problem solving and execution across our network. That said, with Section 232 tariffs already in effect and set to double in the first quarter of 2026, we do anticipate some phasing challenges in the fourth quarter of 2025 and into full-year 2026 as we work to fully implement our mitigation initiatives. Andy will outline several key considerations to help frame the potential impact of these tariffs on our business later in the call. Operationally, we continue to execute well despite the challenging demand environment. Our teams made significant progress in the third quarter on Supreme integration execution, our potential merger with American Woodmark is progressing as expected, and our continuous improvement and strategic deployment initiatives remain effective. The team is executing the Supreme integration on schedule and within plan, a clear demonstration of the organizational capability and rigor embedded in the MasterBrand way. These efforts are driving the cost efficiencies we expected despite market and volume-related headwinds. Additionally, we expect revenue synergies from the Supreme integration to begin coming through as the market returns, which, as a reminder, were excluded from our disclosed synergy targets. Building on our continued success with Supreme, we're now focusing our resources on supporting the potential combination with American Woodmark, applying the same disciplined playbook that has proven effective. We are pleased with the progress on the pending merger. Integration planning is well underway, and we're prepared to begin executing immediately following close. We continue to expect approximately $90 million in run rate cost synergies by the end of year 3 post close, driven by procurement, overhead and manufacturing network efficiencies. Importantly, on October 30, both MasterBrand and American Woodmark shareholders independently voted to provide the necessary shareholder approvals for the proposed transaction. We are also progressing through the regulatory process and continue to expect that the transaction will close in early 2026. Together, MasterBrand and American Woodmark would enhance the industry's most comprehensive portfolio of trusted cabinetry brands, products and services, and the combined company is expected to unlock and deliver meaningful value for our customers, associates and shareholders as well as to the end consumer, reinforcing our confidence in the long-term potential of this merger. Finally, turning to our continuous improvement efforts and capital allocation priorities. Across our facilities, continuous improvement programs again exceeded plan, driving measurable savings that partially offset volume-related headwinds. These programs remain an essential part of our ability to manage through near-term softness while positioning us for long-term margin expansion. Our technology investments are intentional, aligned with MasterBrand's strategic priorities and designed to build scalable, resilient systems that support long-term growth. This quarter, we advanced several cornerstone initiatives, including the deployment of the centralized order management system, which are designed to improve accuracy, efficiency and visibility across the network while simplifying core processes. In parallel, we are executing a phased infrastructure modernization and risk mitigation program across our facilities to enhance network, server and factory system durability, ultimately ensuring greater protection and long-term support for the core operations. Additionally, the Las Vegas facility start-up was completed this quarter and marks a significant realignment of our operational footprint to better serve the Western regional market. Together, these investments are delivering measurable gains in productivity, precision and agility while positioning our organization for accelerated innovation and growth. From a capital allocation perspective, we remain focused on operational execution and flexibility. Capital expenditures were aligned with our expectations. Additionally, our balance sheet remains healthy with sufficient liquidity to support growth initiatives, integration activities and shareholder returns. In closing, we executed with discipline, continue to advance the Supreme integration and are planning for the proposed merger with American Woodmark and further strengthen our operations and balance sheet. While near-term challenges persist, our long-term strategy is intact and our confidence in the business remains strong. As the housing market stabilizes, we are well positioned to capitalize on recovery with greater efficiency, scale and flexibility than ever before. With that, I'll turn the call over to Andy for a detailed review of our financial results and outlook. Andrea Simon: Thanks, Dave, and good afternoon, everyone. I'll begin with a review of our third quarter financial results, and then I'll provide more detail on our updated full-year 2025 outlook. Notably, this quarter marked the anniversary of our Supreme acquisition, which closed on July 10, 2024. Because the transaction occurred at the beginning of the quarter, Supreme's results did not materially impact our year-over-year comparisons. However, integration synergies continue to support our overall performance. As Dave noted, with the Supreme integration progressing as expected, our integration team is focused squarely on applying the same proven framework to American Woodmark integration planning, where we continue to expect approximately $90 million in run rate cost synergies by the end of year 3 post close. Now on to our third quarter results. Net sales were $698.9 million, a 2.7% decrease compared to $718.1 million in the same period last year. The continued softness across end markets, which was down mid- to high single digits was partially offset by the anticipated flow-through of prior pricing actions and continued share gains, particularly in the new construction market. Notably, approximately 40% of the volume decline was mitigated by price and another 20% was offset by share gains. Gross profit was $218.2 million, down 8.3% from $238 million in the same period last year, and gross profit margin was 31.2%, down 190 basis points year-over-year, primarily reflecting lower volumes, related unfavorable fixed cost leverage and tariffs. These headwinds were partially offset by higher net average selling price improvement from prior pricing actions, our continuous improvement efforts net of inflation and Supreme integration synergies. Tariffs had a negative impact of nearly 100 basis points to our gross margin in the quarter, though we were able to offset approximately 90% of this impact through mitigation actions. I'll provide an update on our mitigation strategy and full-year impact in more detail in a moment. SG&A expenses totaled $167.5 million, up 0.7% compared to $166.3 million in the same period last year. SG&A as a percentage of net sales increased 81 basis points year-over-year to 24%, reflecting comparable levels of acquisition-related costs. This was primarily driven by continued investments in our strategic initiatives, particularly around digital technology and marketing, partially offset by lower commission and freight costs following volume decline. Net income was $18.1 million in the third quarter compared to $29.1 million in the same period last year, and net income margin was 2.6% compared to 4.1% in the prior year as a result of lower gross profit, partially offset by lower income tax expense. Interest expense declined to $18.2 million from $20 million in the same period last year, reflecting progress as we continue to delever our balance sheet. Income tax was $5.3 million or a 22.6% effective tax rate in the quarter, slightly better than our expectations and compared to $10.3 million or a 26.1% rate in the third quarter of 2024. The decrease in our effective tax rate was primarily driven by the mix of earnings across jurisdictions. Adjusted EBITDA was $90.6 million, down 13.3% from $104.5 million in the prior year period. Adjusted EBITDA margin was 13%, a decline of 160 basis points year-over-year, driven by market-related volume declines and the associated leverage challenges as well as tariffs. These headwinds were partially offset by continuous improvement savings net of inflation, the flow-through of prior pricing actions and Supreme synergies. Diluted earnings per share were $0.14 in the third quarter of 2025 based on 129.5 million diluted shares outstanding. This compares to $0.22 in the third quarter of 2024, which was based on 130.8 million diluted shares outstanding. Adjusted diluted earnings per share were $0.33 in the current quarter compared to $0.40 in the prior year period. Turning to the balance sheet. We ended the quarter with $114.8 million of cash on hand and $461.9 million of liquidity available under our revolving credit facility. Net debt at the end of the third quarter was $839.3 million, resulting in a net debt to adjusted EBITDA leverage ratio of 2.5x, in line with our expectations given American Woodmark deal-related cash outflow. We remain well positioned to reduce our leverage ratio by year-end. However, the incremental impact of tariffs will keep us above our year-end sub 2x target. In anticipation of the pending merger with American Woodmark, we have amended our existing credit agreement to secure commitments for a new $375 million delayed draw Term A facility, the funding of which is contingent upon the closing of the transaction. The proceeds from this facility will be used to repay and terminate American Woodmark's existing debt following the close of the transaction, further supporting the combined company's capital structure and financial flexibility. Importantly, on a pro forma basis, net debt to adjusted EBITDA leverage at close is expected to be approximately 2x, in line with our expectations and in achievement of our long-term goal. Net cash provided by operating activities was $108.8 million for the 39 weeks ended September 28, 2025, compared to $176.9 million in the comparable period last year. Third quarter cash generation was impacted by lower net income, required bond interest payments, timing of collections and deal-related expenditures. Capital expenditures for the 39 weeks ended September 28, 2025, were $43.8 million compared to $34.6 million in the comparable period last year. This increase reflects planned investments tied to the integration of Supreme and our ongoing footprint realignment initiatives in line with our full-year capital allocation strategy. Free cash flow was $65 million for the 39 weeks ended September 28, 2025, compared to $142.3 million in the comparable period last year. As we look to the fourth quarter, we continue to expect free cash flow to normalize, supported by the absence of certain onetime payments related to the proposed American Woodmark merger, more typical seasonal patterns and growing benefits from our synergies realized from our Supreme integration initiatives. We remain committed to our full-year objective of generating free cash flow in excess of net income. We did not repurchase any shares during the quarter. Our merger agreement with American Woodmark restricts activity under our preestablished Rule 10b5-1 program until the transaction closes. Before turning to our outlook, I wanted to take a moment to address recent tariff developments and the implications for our business. Since our second quarter call in early August, several new trade actions have been announced and implemented that directly affect our industry. In mid-August, the administration reinstated and expanded Section 232 tariffs on steel and aluminum and in late September, announced new Section 232 actions targeting lumber and wood products. These new tariffs up to 25% on kitchen cabinets and vanities took effect on October 14, with additional phase increases planned for the first quarter of 2026, increasing the rate to 50% on kitchen cabinets and vanities. Looking at our cost of goods sold, the cost components are consistent with prior disclosures. Approximately, 45% to 55% of our cost of goods sold is materials, 15% to 25% is labor and 25% to 35% is overhead, varying by product mix and plant utilization. Breaking components down by geographical source, about 70% to 80% are sourced domestically with about 15% to 20% sourced from Asia, primarily Vietnam, and only low single digits from China. The remainder comes from Canada, Mexico, Europe and South America. Breaking down by material type, a little more than half of our components are wood and wood-related materials. About half of our wood and wood-related materials are domestically sourced. In addition, about half of our wood and wood-related product materials are hardwood. Beyond our component exposure to tariffs, we also import certain finished goods from Canada and Mexico, which historically have represented slightly more than 10% of consolidated net sales. Prior to the Section 232 tariffs, these imports were exempt from tariffs given they were USMCA compliant. This exemption does not apply to the new 232 tariffs. Based on our current sourcing profile and product mix, we estimate that unmitigated gross tariff exposure equates to 7% to 8% of 2025 net sales with the degree of impact varying significantly by product category. We are executing a comprehensive strategy to offset these impacts through targeted price increases, supplier renegotiations, alternative sourcing and manufacturing footprint optimization and relocations. As you've seen in our P&L, these mitigation efforts take time to fully materialize, typically between 1 and 12 months. However, we still expect to offset roughly half of the 232 tariff-related cost increase this year, and we remain on track to fully offset previously implemented tariffs on a run rate basis by year-end. With the introduction of the new Section 232 tariffs, our expected net unmitigated exposure is $20 million to $25 million for the fourth quarter based on our current market outlook, net sales and product mix. Over time, we're confident these actions will fully mitigate the impact and preserve our long-term margin profile. We are also closely monitoring additional trade measures under review, including potential countervailing and antidumping duties on plywood, which could further influence the trade landscape. As always, we remain focused on minimizing disruption, protecting customer value and maintaining our competitive positioning. We plan to provide a more detailed assessment of the anticipated 2026 impact when we report fourth quarter and full-year results in February. Now turning to outlook. Our updated full-year 2025 financial outlook includes only those tariffs currently in effect, including the Section 232 lumber tariffs that went into effect on October 14, 2025. It does not reflect potential implications from proposed trade policy changes nor any potential demand impacts from tariffs on cabinets or broader housing activity as those effects remain difficult to estimate in the current environment. Further, our outlook does not reflect any anticipated financial benefits from the proposed merger with American Woodmark nor does it include expected transaction or integration-related costs. As Dave mentioned, we continue to expect our addressable market in 2025 to be down mid- to high single digits year-over-year with continued variability across end markets. Against that backdrop, we expect annual net sales to be approximately flat overall, including a mid-single-digit contribution from Supreme with organic net sales expected to be down mid-single digits. This updated range reflects the continued realization of pricing actions and sustained market share gains. We are updating our full-year adjusted EBITDA guidance to a range of $315 million to $335 million, representing an adjusted EBITDA margin of 11.5% to 12%. Following, we are updating our full-year adjusted diluted earnings per share to a range of $1.01 to $1.13. The lower midpoint and narrow range reflect the timing and impact of recently enacted tariffs. These pressures are partially offset by the early benefits of our mitigation efforts, which continue to progress as planned, but take time to fully materialize. In addition, we are reiterating our previous expectations on interest expense, effective tax rate, capital expenditures and free cash flow. To help offset these near-term bottom line pressures, we are taking targeted actions to reinforce cost discipline across the business. This includes assessing reductions in non-volume-related SG&A, reducing select strategic investments and identifying additional efficiency opportunities for 2026. Together with our mitigation strategy, these actions are designed to protect margins, preserve liquidity and ensure MasterBrand remains resilient through this period of elevated uncertainty. We'll provide a full update on these efforts in our 2026 planning when we report fourth quarter and full-year results in February. We remain very excited about the pending merger between MasterBrand and American Woodmark, which we believe will create a stronger, more resilient company. By leveraging our complementary capabilities and realizing the expected synergies, we are confident the combined enterprise will be well positioned to deliver enhanced value for both customers and shareholders. Now I'd like to turn the call back to Dave. R. Banyard: Thanks, Andy. As we close out the third quarter, it's clear that we continue to operate in a challenging environment. While demand remains uneven and new tariffs are adding near-term pressure, our operating discipline, strong customer partnerships and proven execution give us the ability to manage through volatility while continuing to strengthen our business for the future. Optimization and integration planning for our proposed merger with American Woodmark are well underway. We continue to expect the proposed transaction to close in early 2026, and we remain confident in our ability to unlock and deliver meaningful value with speed, agility and diligence through our combined strengths and resources. Looking ahead, the MasterBrand Wave continues to guide how we operate, keeping us focused, accountable and ready to adapt. We have a talented team, a resilient model and a long-term strategy built to deliver value as the market stabilizes and growth returns. Thank you to our associates for their continued commitment and to our customers, partners and shareholders for their ongoing support. Now with that, I'll open up the call to Q&A. Operator: [Operator Instructions] Our first question comes from Garik Shmois with Loop Capital Markets. Garik Shmois: Just first on the sales guidance for the full-year, the revision, you're at flat now versus down low single digits previously. Just curious if you can go into the reason for the revision on the sales side. R. Banyard: Yes. I think, Garik, the main revision is I think that the pace that we're seeing is we kind of -- as we were evaluating the rest of the year a couple of months ago, we were kind of keeping our eye on what happened last year. I think that as we've come into the fourth quarter here, we don't see that same dynamic. I think it will be still a slightly down quarter, but I think we've performed coming through Q3 and into Q4 from a revenue standpoint a little better. Plus, we do have the pricing actions that we've been taking over the past year to deal with the first round of tariffs are starting to really come through, and so that kind of bolsters us a bit there. Probably, the only question we have in terms of the fourth quarter is the impact of any additional pricing that we're working on for this latest round of tariffs, and what impact that would have on demand. It's too soon in the market to see that. Otherwise, I think in the middle point, I think we're comfortable that flat is the outcome that we're going to have for the year. Garik Shmois: Speaking on pricing, as you've been pushing pricing to offset initial tariffs and you need to push additional pricing to offset current tariffs and future inflation. I was wondering if you can just speak to any unforeseen challenges in your ability to realize pricing and if you've seen any demand destruction as a result of price increases up until this point? R. Banyard: Yes. I think the -- that's a fair question. I think the odd part about this round of tariffs is it's not even neither was the last for the most part. We do a lot of sourcing domestically, and we do a lot of manufacturing domestically. But these rounds of tariffs, particularly Mexico and Canada, have an outsized effect on those product categories. Those are the ones that, a, have the biggest impact on the total bill that we're faced with from a tariff perspective, but it also is the one that's the biggest challenge, I think, from a pricing standpoint. On the flip side, I think that's where we're focusing a lot of our energy on mitigation outside of price, and so remember, our mitigation efforts here are not just price. There are a wide range of things that we're working on doing, some of which are going to take some time, but the idea is to try to mitigate as much as we can operationally and then the remainder is what we put out in price. I'll give you a specific example. We import almost all of our bathroom vanities from Mexico as a finished good. That product category is really not viable at a 50% price increase. We're working on mitigating that, but if we can't get some of the price that we need because we can't mitigate all of it, we're going to have to evaluate whether that product is viable. That's not factored into our guidance. We'll talk more to that when we come with 2026 guidance. We should have better clarity at that point. The rest of it is, though, that there's a lot of other -- this is going to impact the whole market. We have to see, and that's not apparent yet what that's going to do, so we have to see how the overall market responds to all this. I think just for your planning and thinking, it's just remember, it's just a lag effect for us, and that's the hardest part of this tariff regime as it comes in fairly quickly, and it takes us time to mitigate it. We're going to have that dynamic for a couple of quarters as we work through this. Garik Shmois: Just lastly, just to follow-up on that last point. You mentioned, the net unmitigated exposure, I believe, is $20 million to $25 million in the fourth quarter. It's certainly difficult to predict how all this is going to play out in '26 and not to ask you for kind of a guidance for next year, but how should we think about maybe the phasing of your unmitigated exposure as you move into next year beyond the fourth quarter? R. Banyard: Well, I mean, the easy part is the bill started coming due on October 14 and then the next round starts on January 1. That's when the cost starts coming in. I think I would -- if I were you I'd go back and look at our performance through the highly inflationary years of COVID, different in that it wasn't announced inflation. It just started happening to everyone in the industry, but the dynamic and the timing will be similar. Andy highlighted in her remarks, some mitigation takes a month, some takes 12 months, so it's going to spread out through the year. We'll go as fast as we can, but ultimately, we want to make sure we're not disrupting the customer and doing it in a controlled way, and that's going to take some time. Operator: We have reached the end of our question-and-answer session, which concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: " David Connolly: " David Meeker: " Jennifer Chien: " Yann Mazabraud: " Hunter Smith: " Michael Ulz: " Morgan Stanley, Research Division Philip Nadeau: " TD Cowen, Research Division Derek Archila: " Wells Fargo Securities, LLC, Research Division Angela Qian: " Canaccord Genuity, Research Division Faisal Khurshid: " Leerink Partners LLC, Research Division Erik Wong: " Goldman Sachs, Research Division Julian Pino: " Stifel, Nicolaus & Company, Incorporated, Research Division Evan Wang: " Guggenheim Securities, LLC, Research Division Georgia Ban: " Jefferies LLC, Research Division Raghuram Selvaraju: " H.C. Wainwright & Co, LLC, Research Division Jonathan Wolleben: " Citizens JMP Securities, LLC, Research Division Operator: Good day, and thank you for standing by. Welcome to the Rhythm Pharmaceuticals Q3 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, David Connolly, Investor Relations at Rhythm. Please go ahead. David Connolly: Thank you, Heidi. I'm Dave Connolly here at Rhythm Pharmaceuticals. For those of you participating on the conference call, our slides can be accessed and controlled by going to the Investors section of our website, ir.rhythmtx.com. This morning, we issued a press release that provides our Q3 financial results and a business update, and that press release is also available on our website. Our agenda is listed on Slide 2. On the call today are David Meeker, our Chairman, Chief Executive Officer and President; Jennifer Lee, Executive Vice President, Head of North America; Hunter Smith, Chief Financial Officer; and Yann Mazabraud, Executive Vice President, Head of International is on the line joining us from Europe. On Slide 3, I'll remind you that this call contains remarks concerning future expectations, plans and prospects, which constitute forward-looking statements. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed on our most recent annual quarterly reports on file with the SEC. In addition, any forward-looking statements represent our views as of today and should not be relied upon as representing our views as of any subsequent dates. We specifically disclaim any obligation to update such statements. With that, I'll turn the call over to David Meeker, who will begin on Slide 5. David Meeker: Thank you, Dave. Good morning, everybody. Thank you for joining us this morning. Rhythm delivered strong growth and continued momentum during the third quarter as we prepare to launch IMCIVREE in acquired hypothalamic obesity pending FDA approval. That is a transformative opportunity for Rhythm. We are finishing strong in 2025, a year in which we delivered robust Phase III data with setmelanotide and HO, presented outstanding Phase II efficacy data with our next-gen oral MC4R inhibitor, bivamelagon, and strengthened our balance sheet with a $189 million equity offering in July. With our PDUFA date next month and additional data readouts coming this quarter and next, we are well positioned to deliver sustained long-term growth. The steady growth in global IMCIVREE revenue driven predominantly by BBS continued this quarter with $51.3 million in sales, representing growth of approximately 10% in the number of patients on reimbursed therapy. We have built a strong global foundation for our business with IMCIVREE, the only therapy that addresses the root cause of hyperphagia and the severe obesity of rare MC4R pathway diseases. The teams continue to engage with physicians and prescribers, identify patients and ensure access to IMCIVREE. Beyond commercial success, we have been executing on the regulatory front as well. For HO, both the FDA and EMEA accepted our regulatory filings this quarter. The EMA validated our type 2 marketing authorization request and the FDA accepted our supplemental NDA filing. The regulatory dialogue has been promising and productive and keeping us on track for a December 20 PDUFA date and potentially European approval in the second half of 2026. Jennifer and Yann will share some details on the quarter as well as the upcoming launch efforts in the U.S. and the timing in the international region. We remain on track to report preliminary results from our exploratory Phase II trial in Prader-Willi syndrome by the end of the year. I have no further updates on today's call, but I will reiterate several of the comments we have made previously. There's a strong biologic rationale as to why MC4R agonism may work in PWS based to a large extent on the involvement of the MAGL-2 gene where patients with isolated MAGL-2 variants have impaired signaling through the MC4R pathway. We also know PWS is an incredibly complex disease due to defects in many genes and a clinical presentation characterized by obesity, hyperphagia, cognitive delay and abnormal behaviors. It is this latter aspect of the disease, which makes clinical studies particularly difficult. Thus, our rather neutral prediction that we have a 50-50 chance of working. Success will be defined by a BMI percent change with the target being results that would give us confidence we could clear a 5% threshold in BMI decrease at 52 weeks in the Phase III trial. We are collecting measures of hyperphagia, specifically the HQCT questionnaire in this trial. But I remind you, it is an open-label trial and absent a control group interpretation will be difficult. We are working with one site with a goal of enrolling 10 to 20 patients followed for 6 months. Obviously, we will not be reporting out on the full cohort in our end of the year release. I know there will be questions on exact timing. There are some practical aspects to that with regard to having as much data entered into the system and quality check as possible, but we can commit that it will be prior to the Christmas break. One comment before we dive into the findings on Slide 6 is that over my career working on a number of rare diseases, one aspect that is invariably true is that when you get a therapy approved, you have only just begun to learn the full impact of your therapy on that disease. In BBS, for example, we had the clinical data from approximately 50 patients at the time of approval. These MC4R pathway diseases are rare and absolutely fit that mold. The paper described here on Slide 6 is a German study that showed 6 months of setmelanotide therapy was associated with clinically meaningful improvements in steatotic liver disease and kidney function. This prospective observational study was conducted at University Hospital Essen in Germany with 26 patients with BBS ages 6 to 52 years, all with metabolic dysfunction-associated steatotic liver disease or MASLD at baseline. These patients were followed for 6 months. And after 6 months of treatment, more than 80% of patients exhibited either resolution of MASLD or stabilization at the lowest grade of disease or S1. We know weight loss can improve liver function in patients with obesity, but these changes did not correlate closely with BMI change, raising the possibility that some other aspect of the melanocortin biology may be mediating these changes. These results were recently published in the Journal of Clinical Endocrinology and Metabolism. On Slide 7, our upcoming launch in HO represents an incredibly important milestone for Rhythm. As you heard from Jennifer at our investor event in September, and we'll hear again from her this morning, we have the pieces in place to execute a successful launch. She and her management team have done a great job expanding our existing commercial teams with the hiring of a group of highly experienced and extremely talented individuals who are excited to get started. With an estimated prevalence of 10,000 patients in the United States, this is, as noted, a transformative opportunity for us. The unmet need is significant and clear and setmelanotide showed strong efficacy in Phase II and III trials. The regulatory dialogue is ongoing, and we appear to be on track for our PDUFA date of December 20. Obesity Week begins this week in Atlanta. Dr. Christian Roth has an oral presentation of the outcome of patients on GLP-1 therapy in our Phase III trials. You have seen this data previously, but it will again be an opportunity to highlight the value of correcting the hormonal deficit in alka-melanocyte stimulating hormone in patients who may not be getting the desired response from other anti-obesity medications. Overall, there is strong buzz in the community and a lot of excitement at Rhythm as we near launch. Lastly, Slide 8 are the upcoming milestones. We covered the first 2, our PDUFA date and potential HO approval and the preliminary data readout in Grader-Willi, both likely coming in December. We aim to complete enrollment of the RM-718 weekly Phase II study in HO patients during the first quarter of 2026. We will also release top line data from the Japanese cohort from our Phase III acquired HO trial in Q1, and we will release top line data from the EMANATE trial in Q1. We aim to complete enrollment of the congenital HO trial in the first half. And finally, we will initiate our Phase III study with bivamelagon in acquired HO next year. We'll further define the timing once we've had feedback from the regulators. It's a busy end of the year. With that, I will turn the call over to Jennifer. Jennifer Chien: Thank you, David. I'm going to be starting on Slide 10 today. So it's an exciting time as we continue our preparations for launch in acquired hypersonic obesity pending FDA approval by leveraging the strong foundation of our commercial efforts for BBS. BBS and HO are both rare diseases caused by an impairment to the MC4R pathway, which commonly results in hyperphagia or abnormal food-seeking behaviors and severe obesity. IMCIVREE is unique in its ability to address the root cause of hyperphagia and obesity in these patients. And over the last 3 years, we have seen that physicians are prescribing IMCIVREE for their patients with BBS, payers are providing access and patients are benefiting with some now entering their fourth year on treatment. The positive growth in BBS continued during the third quarter. Quarter-over-quarter, we have seen a steady volume in new prescriptions and an increase in number of patients on reimbursed therapy. We continue to see gains in both the depth and breadth of prescribers with approximately a 7% increase in the cumulative total number of BBS prescribers quarter-over-quarter. In the third quarter, the proportion of prescriptions for pediatric versus adult patients began to normalize following the uptick in prescriptions for pediatric patients during the first half of this year, which we discussed in our last quarterly call. For the third quarter, the breakdown of new prescriptions was as follows: 50% of new patients were adults, 22% were adolescents and 28% were pediatrics. And these percentages are trending back to the typical mix prior to the IMCIVREE label expansion to include patients as young as 2 years of age. Next slide. Moving on to our preparations for the acquired hypothalamic obesity launch. We have hired highly experienced professionals to supplement our home office and field organization, and our teams have been actively engaging with customers. As we outlined on our acquired hypothalamic obesity commercial readiness event in September, we are focused on engaging with and educating physicians in order to differentiate MC4R pathway diseases, including acquired hypothalamic obesity from general obesity, expedite patient diagnosis and following approval, establish IMCIVREE as the foundational treatment for acquired HO and educate payers to secure access and support patients long term once they have initiated treatment. Next slide. We also shared some insights into the market and our data-driven approach to this specialty-centric opportunity. We analyzed claims data to narrow down our top physician targets and size our field teams. Let me walk you through that once again. We started with claims associated with brain tumors and treatment. Within these, we looked at those with hypothalamic dysfunction and also obesity. And lastly, within these, we look to patient visits with an endocrinologist within the past 18 months. This claims analysis allowed us to identify approximately 5,000 endocrinologists who potentially have 1 patient or more with hypothalamic obesity under their care. From these 5,000 endocrinologists, we narrowed our initial focus to 2,400 top-tier physician targets who we believe manage a higher volume of patients. Next slide. Throughout this year, our teams have focused on profiling our top targets. Their profiling activity to date has resulted in the identification of more than 2,000 potential patients suspected to have HO or formally diagnosed to have HO. We are still early in the process of profiling identified physicians and our expanded sales organization is now on ground, focused on further penetrating these top-tier targets to identify more potential patients with acquired aspislamic obesity. Next slide. Our teams are in place and as we expanded our organization to support the upcoming launch. Our access team is engaging with payers to educate them on acquired HO and setmelanotide data through pre-approval information exchange presentations to support reimbursement once approved. Our territory managers are in the field engaging with the physician community to increase disease awareness. And once IMCIVREE is approved an acquired HO, they will educate on IMCIVREE's efficacy and safety data to support prescriptions. Our patient service team will engage with patients and their families to educate them on the disease to help them navigate insurance coverage once prescribed IMCIVREE and provide support to help guide treatment expectations and keep them on treatment long term. It's certainly an exciting time with a strong foundation in place with many learnings on the needs of patients and their providers, a clear strategy and experienced teams in place, we are ready to go, pending approval on December 20. With that, let me hand it over to Yann. Yann Mazabraud: Thank you, Jennifer. I begin on Slide 16. We saw continued success with our international business during the third quarter as IMCIVREE is now available for BBS and/or POMC/LEPR deficiencies in more than 25 countries outside the United States. And the number of patients with BBS POMC/LEPR deficiencies or hypothalamic obesity on IMCIVREE continues to grow in the international region. During the third quarter, we reached an agreement with the French Economic Committee for Health Products on reimbursement pricing for IMCIVREE for BBS and POMC/LEPR. We are pleased with the result of the negotiations as the negotiated price is in line with rare disease pricing and also reflects the therapeutic benefit patients receive from with IMCIVREE. We remain very encouraged by our reimbursed early access programs for HO in France and Italy both granted based on our Phase II data, which is very uncommon. The growth of these programs illustrates the important unmet need and setmenotide's potential to provide these patients with significant therapeutic benefit. And in parallel, named patient sales continue to provide access to patients in several additional countries outside the EU4 and the U.K. For example, just recently, we achieved our first commercial patient in Argentina through a named patient sales. Our team continues to execute and remains committed to expanding market access for patients in addressing the unmet need to treat these rare MC4R pathway diseases throughout the international region, establishing foundational relationships with expert physicians and local authorities built on patients benefiting from IMCIVREE. This will help us to be successful as we prepare the next freedom chapter for the international region. Next slide. The next chapter is our international launches in hypothalamic obesity. The global unmet need for HO treatment is high as demonstrated by the growth in our early access programs in France and Italy. During the third quarter, we completed the EMA submission to expand the marketing authorization for IMCIVREE to include acquired HO. The EMA has a set calendar to review such submissions. And if that time frame holds and the review is positive, we anticipate a CHMP opinion and the EU marketing authorization in the second half of 2026. Establishing reimbursement for acquired HO in Europe country by country will take time. Germany will be the first country where we would launch. But as we did for POMC/LEPR and BBS, we will seek an exemption from the German Federal Joint Committee an exclusion list that prohibits reimbursement for lifestyle drugs, such as drugs designed to treat hair loss, smoking cessation and general obesity. This process is necessary in order to secure federal reimbursement. We are confident we can have the same success we had with POMC/LEPR and BBS as IMCIVREE was the first-ever precision medicine to be exempted and therefore, reimbursed. We believe the same approach should hold for acquired HO and that is demonstrating acquired HO clearly is a rare disease that is distinct from general obesity. So we are hopeful for a similar outcome. At the same time, we will engage in access and reimbursement negotiations in the United Kingdom, Italy, Spain, the Netherlands and other countries. Taken together in these countries, we estimate the prevalence of acquired HO in Europe to be approximately 10,000 patients, making Europe a meaningful market for us. Moving to Slide 18. Japan will also be a very important market for us with an estimated prevalence between 5,000 and 8,000 patients, which is 2 to 3x greater per capita than Europe and the United States. We have started to build out a strong local team with a focus on regulatory, quality, CMC, medical affairs, market access and marketing. We have now established a strong leadership team in Japan, and we have already 14 Rhythm employees in place. Notably, our General Manager, who is already well known to the team here from our time together at Sanofi Genzyme, previously led the highly successful launch of Dupixent in Japan. As David said, we anticipate top line data from the Phase III cohort of Japanese patients in the first quarter of 2026, which will be followed by submission of the Japanese NDA to the PMDA. Typically, regulatory review in Japan is approximately 9 months. These ex- U.S. time lines point to launches potentially during 2027. With that, I will turn the call over to Hunter. Hunter Smith: Thank you, Yann. Before discussing the specifics of the quarter, let me reemphasize the message of financial strength delivered during our last quarterly call. As we raised approximately $189.2 million in net proceeds from a follow-on equity offering completed early in Q3, we ended the third quarter with $416.1 million in cash on hand. This cash in conjunction with projected revenue from anticipated global sales of IMCIVREE for currently approved indications and including HO pending FDA approval as well as planned R&D and SG&A spending provides us with at least 24 months of runway. Rhythm's balance sheet is as strong as it's ever been. Now looking at Slide 20 and the revenue dynamics during the quarter. Global revenue for the third quarter was $51.3 million, a sequential 6% increase from $48.5 million for the second quarter of 2025. The number of patients on reimbursed therapy increased by 10% globally during the quarter. $38.2 million or 74% of Q3 net revenue was generated in the United States and $13.1 million or 26% of total revenue was generated outside the United States. The U.S. delivered another solid quarter, buoyed by a high single-digit percentage increase in the number of reimbursed patients on therapy. Approximately $3.7 million of the quarter-over-quarter increase in revenue was driven by an increase in IMCIVREE dispensed to patients, a good indication of fundamental growth in demand. As we've seen in prior quarters, there was also an inventory effect Q2 into Q3 with increases in inventory at our specialty pharmacy driving $2.5 million of the sequential variance in quarterly sales. The quarter ended on a Tuesday, the day that our specialty pharmacy takes delivery of product, with the result that their inventory days on hand increased from just under 10 days at the end of Q2 to approximately 16 days at the end of Q3. Outside the U.S., quarter-over-quarter revenue decreased by $3.4 million. Patients on reimbursed therapy increased at a low double-digit percentage during the quarter, indicating continued solid fundamental growth in demand for IMCIVREE. In France, as Jan mentioned, we agreed to a final reimbursement for IMCIVRE for POMC/LEPR and BBS. Since 2022, we have been accruing revenue under the French early access programs and provisioning for this eventual agreement. Based on this agreement, we recorded a onetime $3.2 million charge during the quarter -- third quarter of 2025 to account for the difference between what has been accrued to date and what is owed. Of the $3.2 million, approximately $0.6 million was related to revenue booked in Q3 '25 and $1.5 million was related to year-to-date 2025, with the balance related to periods prior to 2025. Excluding this impact, international revenue was affected by variability in ordering patterns for named patient sales in certain distributor markets. On Slide 21 is the financial snapshot. In the year-over-year comparison to Q3 2024, the net product revenues increased $18 million or 54% and gross to net for U.S. sales was 84%, generally in line with gross to net percentages we've shown in previous quarters. Cost of goods sold this quarter was 10.7% of product revenue, which is mostly attributable to cost of materials and our royalty payment on setmelanotide to Ipsen. We generally expect cost of goods sold to be between 10% and 12% of net product revenue with variation due to how our inventory balances are changing and the corresponding capitalization of labor and overhead costs. R&D expenses were $46 million for Q3 compared to $37.9 million in the same quarter last year. Sequentially, R&D expenses increased $3.7 million or approximately 9% over Q2 2025. This increase was primarily due to chemistry, manufacturing and controls or CMC work related to improving the formulation of bivamelagon and development of an auto-injector for RM-718 as well as increased headcount and stock comp expense. Year-over-year increased spending was partially offset by a reduction in clinical trial costs. SG&A expenses were $52.4 million for Q3 2025 as compared to $35.4 million in Q2 last year. Sequentially, SG&A expenses increased by $6.5 million or approximately 14% compared to Q2 2025. Increased SG&A spend from Q2 to Q3 was due to increased headcount costs and marketing costs associated with the upcoming launch in acquired hypothalamic obesity. For the third quarter of 2025, the weighted average common shares outstanding were 66.3 million. The increase in Q3 was mostly due to the equity offering when we issued nearly 2.4 million shares as well as the exercise of previously issued stock options. Cash used in operations was approximately $27 million during the third quarter. Our GAAP EPS for the third quarter of 2025 was a net loss per basic and diluted share of $0.82, including $0.02 per share from accrued dividends on convertible preferred stock of $1.4 million. We ended the third quarter with approximately $416 million in cash, cash equivalents and short-term investments, which, again, we expect to be sufficient to fund planned operations for at least 24 months. Lastly for me, on Slide 22, there is further detail on our operating expenses for the third quarter and updated full year operating expense guidance. For the third quarter, operating expenses of $98.5 million include a total of $18.8 million in stock-based compensation. For fiscal year 2025, we are tightening our full year guidance and shifting the mix between R&D and SG&A expenses given the resources we have committed to be ready for the anticipated launch of IMCIVREE acquired HO later this quarter. We anticipate approximately $295 million to $315 million in non-GAAP operating expenses comprised of non-GAAP R&D expenses of $150 million to $165 million and non-GAAP SG&A expenses of $145 million to $150 million. With that, I'll turn the call back over to David. David Connolly: Thank you, Hunter. And with that, we'll go to Q&A. Operator: [Operator Instructions] We will take our first question, and the question comes from the line of Mike Ulz from Morgan Stanley. Michael Ulz: Congratulations on all the progress. Maybe just one quick one on bVomeEalon. If you can share your latest thinking on the trial design for your Phase III HO study. And just curious if you received any initial feedback yet from the FDA there. David Meeker: Yes. At this point, we've run many trials in this MC4R pathway area. Vivo will be -- the HO trial will be similar, and we'll obviously mimic what we did in the HO trial. So our expectation at this point is it will be a double-blind randomized controlled trial. We will have a discussion with the regulators around the duration of the double-blind period. Our expectation is that in some form, they will want a full year of data. This is a new chemical entity and MC. So again, whether we would provide that 6 months of double-blind plus an additional 6 enroll open label will be better the kinds of questions we'll bring forward to regulators. But in terms of primary endpoints and the like, again, we will be a percent BMI change, and we'll be enrolling children and adults in the trial. And then in terms of regulators, so we anticipate at this point, our expected Phase II, post-Phase II meeting with the FDA when we would get this feedback is likely to be in the first quarter next year. Operator: The next question comes from the line of Phil Nadeau from TD Cowen. Philip Nadeau: On the progress. Our question is to dive into the PWS efficacy endpoints a bit further to understand what you need to see to advance IMCIVREE forward in PWS. So in terms of weight, you suggested something that suggests 5% weight loss at 1 year. Can you give us more of a sense of what that is? Is that 2.5% at 26 weeks? Or is there a different way to think about it? And then in terms of hyperphagia, a similar question. You said it's going to be hard to interpret, but nonetheless, hyperphagia is a major determinant of quality of life in Prader-Willi. So is there any level of hyperphagia change that would be proof of concept and warrant further development? David Meeker: Yes. Yes. No, and I'll just pre saying. I know there's going to be a lot of questions on Prader-Willi. I'll do the best, but needless to say, I won't have a lot more to add to the color we provided previously. But your question on what constitutes success and how will we interpret it. We talked -- our goal is to get 10 to 20 patients on treatment for 6 months. We'll have some part of that cohort available by the end of the year. Obviously, a very small data set. We'll present patient-by-patient data the way we've done in the past, so you can all see exactly what we're looking at. It's not a mean number again, we highlighted that for the BIVA data. It's going to be very much looking patient by patient. And if patients seem to do well, what's our best understanding as to why they did well. And if another patient didn't do well or have the change, is there some other explanation for that. And you take all that into account. So it's going to be a judgment call, Phil, needless to say. And I don't think it will be -- well, let's put it this way. I mean, you can make these judgment calls in these small data sets, but that's how it will be done. It's not a magic number of we got halfway to the 5% at 6 months. I don't expect necessarily that, that's going to be the metric per se. These things don't tend to be linear, but there will be a level of confidence looking at the individual data points that the drug seems to be working and we run a longer -- a larger trial, we'll be able to get to the 5%. And then just one last thing on the HQCT. Just to remind everybody, our primary endpoint here is BMI percent change. We would not go into a Phase III trial without confidence that, as I just indicated, we could move that BMI. We wouldn't pursue a hyperphagia label only. I know a number of companies are out there, and I'm seeking that approval at this time. However, based on the mechanism of our drug, if we do see BMI percent change, almost by definition, given the biology, we will improve hyperphagia. Operator: Your next question comes from the line of Derek Archila from Wells Fargo. Derek Archila: So first question, just can you discuss some of the drivers behind the changes to the ongoing variability trial for IMCIVREE? It looks like you extended it out to 52 weeks from 26 and what looks like the potential to explore adding sites to the trial? And then the second question, just briefly, can you discuss if you've had any FDA agreements or discussions around the indication statement for HO and whether it could or could not include hyperphagia? David Meeker: Yes. I'll take the last one first. So on the HO, again, our regulatory interactions have been -- I'd characterize them as routine, which is favorable given a lot of the news certainly in the FDA, but it's been not exactly as we would expect. They come back with specific questions and we answer those. The labeling discussions tend to be late. So with regard to your specific question on indication, we have not entered into that specific dialogue as of this point. In terms of the updates that a number of you picked up on in clinicaltrials.gov for the grader-Willy Phase II study, that's really housekeeping. So there was 2 issues there we updated on. One is in any trial, rare disease trials, we set the 6 months as the endpoint, meaning that's the point at which we would look at the BMI and make this judgment, so to speak, are you seeing success or not. But allowing patients to continue if they feel like they want to beyond 6 months, we needed to update the trial to allow that to happen as opposed to leaving somebody and just saying, okay, we got to stop the drug now. And then the second was in terms of adding an additional site, again, that was just in case we needed, working with a single site, Dr. Miller site in Florida, as you know, she's extremely busy. And so that was just in case we couldn't -- as of this point, we haven't opened a second site. We're continuing to work with Dr. Miller and she's doing well there. So nothing to read through. Operator: Your next question comes from the line of Whitney Ijem from CG. Angela Qian: This is Angela on for Whitney. Maybe switching gears a little bit, a question on the HO launch. Any update you can provide around conversations you're having with payers? Should we assume that most or all patients will be on the free drug program until payers start to finalize their policy updates in 3 to 6 months after approval? Or any color you could provide around the gross to net around launch? David Meeker: Maybe just one comment before I turn it over to Jennifer. So the patients who have been in the trial will stay in the trial. So the clinical trial patients will stay on drug until they get access, but we will not have an early access program specifically. But beyond that, Jennifer, do you want to comment on? Jennifer Chien: Yes. So we feel very positive just based off of the feedback that we've received just through our discussions with payers as well as the market research that we've conducted, just gaining payer insights overall. I think from a process of reimbursement post approval, it's going to be a similar process just in general as we receive prescriptions. Even if there's not a specific policy in place by the time we receive the script, we still work through the process just in terms of going back to the payer to try to gain access, and we've been able to gain access even prior to that formal policy being in place. So I don't expect anything to be different. And I don't expect that we have to wait until the actual time of evaluation of this particular drug with that specific payer to actually be able to gain reimbursement and put that patient on commercial therapy. Operator: The question comes from the line of Faisal Khurshid from Leerink Partners. Faisal Khurshid: I wanted to ask about how investors and the Street should be thinking about the launch curve in hypothalamic obesity. I know you guys have put out this kind of -- these metrics of like 2,400 target physicians and 2,000 patients that you believe are kind of your top targets. How should we think about kind of prosecuting that opportunity and like what the shape of the launch curve could look like relative to like Bardet-Biedl or relative to other launches out there like the Prader-Willi launches? Jennifer Chien: Thanks for the question. I think overall, just in terms of AHO, we have such a solid ground just based off of what we have learned and put in place for the BBS launch, even very specifically, a lot of work just in terms of the payer landscape to have them understand the difference in terms of our patient population and our drug versus general obesity to have that strong foundation in terms of that understanding as we potentially expand to other indications that are rare that also target a similar pathway. We have the right team in place. We feel very confident holistically just in terms of the ACP targeting that we have and are really pleased with the progress. And as outlined -- we outlined that we had about 2,000 potential patients that were suspected or actually diagnosed at this point of time. I think with that said, the things that are similar just in terms of BBS and any rare disease is that without a therapy available, there really isn't that much incentive to get patients to a diagnosis, and there's not a lot of education to also help in terms of getting patients to that diagnosis. And that is very similar to what we have learned in the HO space. Although it's easy potentially to identify potential patients with the background that may have HO, those patients have not necessarily gotten to that specific diagnosis. So that's going to take a bit of time, especially as it takes time for these patients to get back to the endocrinologists to be able to see them, have that discussion, get that diagnosis and then post approval, have that discussion about potentially getting on to IMCIVREE. So we're -- we feel very confident just in terms of our ability to execute, but there are different factors that may impact the ramp in terms of launch. David Meeker: And 2 things I'll just add in complement to what Jennifer just stated. First, the PWS situation is significantly different because many PWS patients are cared for in group homes and dealt with in very specific specialized centers with the result that the opportunity for them to be prescribed in a more bolus-like fashion is greater. So the -- what we -- our research has indicated that the HO patients are more distributed with community and local endocrinologists as opposed to in specialized centers. And secondly, conversely, versus -- as Jennifer stated, versus BBS with a higher diagnosis rate and the care in a single specialty accounting for much greater patient percentage of the patients, there is more opportunity there in the early days. Operator: Your next question comes from the line of Corinne Johnson from Goldman Sachs. Erik Wong: This is Erik on for Corinne Johnson here. And the question we have is just to double-click a little more on the HO launch that we were just discussing here. How should we think about the process for and the cadence of reimbursement and the anticipated gross to net in HO, spec like relative to BBS. Can you just give us a little more color on that? David Meeker: You want me to speak to gross to net to start. I think what we anticipate in terms of differences gross to net is -- it's a little hard to say. We've had around a 50-50 Medicare commercial mix for BBS. We don't know how different the HO population will be, but that is the primary driver of our gross to net because we don't rebate in any meaningful way. So it really is just a question of what's the Medicaid share. That, of course, assumes that we still do not have Medicare access. If we are able to get Medicare access, then that GTN mix will shift favorably. Jennifer, on the process, in terms of the flow here, getting that patient from an initial script to treatment? Jennifer Chien: Yes. So we're already engaging with payers just in terms of giving them that heads up just in terms of time lines and potential approval within HO. So they at least have that preliminary background in terms of expectations. Once we received an Rx, our teams work to be able to work through that reimbursement process and that particular payer may be more prioritized in terms of our payer-facing team in terms of follow-up to educate them that we did get approval and we did get a script to be able to try to get reimbursement for that patient. I think like the timing overall in terms of getting specific policies in place, there are specific timings that different payers have in terms of review of drugs. So that policy timing is a bit different and could be delayed depending on the timing of that particular payer and the review of our drug post approval. But similar to BBS, we didn't necessarily have a policy in place before we got reimbursement for that patient. So we're going to be working both of those through. David Meeker: Yes. Maybe just to close on that, as Jennifer said, it's a huge advantage to this a follow-on indication. So BBS was basically our first time through and people are learning about the drug for the first time. Here, they know the drug and they got to learn an indication. As Jennifer said, that will take some time, particularly with the policies amazing thing that her team has done is policy or no policy, we can get these patients reimbursed. Operator: Your next question comes from the line of Paul Mattis from Stifel. Julian Pino: This is Julian on for Paul. You talked in the past about how some patients in the PWS study may also be on background VCA. Just based on the mechanism, curious on how you see the potential for additive benefit with setmelanotide. David Meeker: Yes. No, it's a good question. I mean we're interested in learning more there. As you highlighted, patients who are on VCA are allowed as long as they're stable and stable in the judgment of the treating position, in this case, Dr. Miller, stable on their VCA dose, they are allowed in the trial. Mechanistically, how does diazoxide work with hyperphagia, obviously, by definition, their approval has decreased, behaviors may be somewhat better. What circuits are they working on? I think the one thing we're confident of is we're not redundant. They're not working through setmelanotide, MC4R agonist and exactly however diazoxide working are not working through this MC4R pathway exactly. So there's certainly a possibility for them to be complementary. I think from a side effect profile, there's not overlapping toxicity. So they certainly can be used together with no concerns. So we'll see. Again, we're, like I said, open to learning here, and hopefully, this trial will give us some insight. Operator: Your next question comes from the line of Seamus Fernandez from Guggenheim Securities. Evan Wang: This is Evan Wang on for Seamus Fernandez. Two questions from me. First, on Prader-Willi, just a follow-up on the trial amendment. Curious in terms of the extension out to 52 weeks and the degree of participation anticipated or observed thus far, have there been any dropouts as patients are entering that original 26-week conclusion? And then on HO, curious about the international launch preparations, particularly in Europe. Just wondering if you could comment on how you're preparing for another launch there given existing approvals in BBS and any kind of major dialogues with major reimbursement authorities? David Meeker: Yes. So I'll go and then Yann let take the international one. So I'm not going to update exactly where we are in the patients in the trial and who's beyond that. That will all be coming shortly. Again, we're targeting -- it will definitely be in December. And as I said, the goal is to put out what data we have prior to the Christmas break. Yann, do you want to talk about the international launch? Yann Mazabraud: Yes, sure. Thank you for the question. So as I said during my presentation, we expect to launch in Europe across various countries during 2027. I think we will follow almost the launch sequence we had for BBS, we have already started to engage with the payers. So the payers have known us for now many years and they know setmelanotide very well. And they also have a lot of experts that they can reach out to better understand the drug and the disease. So we are really confident with our launch preparation. And the last thing is maybe in terms of team. The HO patients population is, of course, larger than BBS. So we will add some staff to make sure that we can adequately cover all the HCPs necessary to make the most of this opportunity, but this will come later, and this will follow the launch sequence. David Meeker: Yes. Thanks, Yann. And I just want to emphasize something Yann just said, which is a really important part of this international equation is these single payer systems, some many of them, they use local experts. And these are all people, as Yann said, we work closely with. Many of them are trial -- have been part of our trials. And so they're not only experts in the disease, they know the drug well, and they've been incredibly helpful in our prior discussions. And as Yann said, we anticipate them being very helpful in the upcoming HO discussions. Operator: Your next question comes from the line of Dennis Ding from Jefferies. Georgia Ban: This is George Ban on for Dennis Ding. We had one on the PWS. When you disclose the initial data in December potentially, should we also be expecting a go versus no-go decision in terms of moving into Phase III? Or is there a scenario where you would wait for a longer follow-up before making that decision? David Meeker: Yes. No, fair question. Yes, definitely, that's a scenario. I mean, I think this is incomplete data, and we might be in a position to make a call depending on how strongly we feel the data signaling or we may indicate that, look, we want to continue to get the full data set, and then we'll come back to you with that final decision. So yes, all options are on the table. Operator: And the final question comes from the line of Raghuram Selvaraju from H.C. Wainwright. Raghuram Selvaraju: I just wanted to ask about the German observational study findings and how you expect that to potentially percolate into other indications beyond Bardet-Biedl syndrome? And what impact you anticipate this might have on prescribing decisions in those areas? David Meeker: Yes. Thanks for picking up on that with the question. I think what we found most interesting about that, a, well, it's just interesting in general, right? I mean these livers improved to a remarkable degree in BBS. And as I highlighted in my comments, it didn't seem to tightly correlate with BMI change. And so it raised the possibility. We know there's MC4 receptors in different places. We know MC4R agonism interacts with the autonomic nervous system, the vagus iterates the liver. There are -- they're not MC4 receptors in the liver. There are MC1 receptors in the liver. So it just -- it's -- as I said, you get a drug approved, KOLs, others start making observations and you begin to learn a lot more. So I think there's a lot -- my point, again, of sharing that was that I think there's a lot more to be learned about this mechanism beyond simply the reduction in hyperphagia and associated increase in energy expenditure and associated BMI weight decrease. So that's it. Like I said, it was -- these are pretty remarkable results, and we thought it was worth highlighting. Operator: We do have a question and the question comes from the line of Jon Wolleben from Citizens. Jonathan Wolleben: Just wondering -- and sorry if I missed this earlier, of the 2,000 potential patients, have you been able to identify any more information on them on who may or may not be good candidates for one reason or the other? Or is it simply that you have kind of an identifier through the claims analysis you've done? Jennifer Chien: So the 2,000 patients are ones that through the discussions of our field organization and just discussions with the physicians, they have outlined that either they have X number of diagnosed HO patients or they have Y number of patients that meet that definition and criteria that they wanted to further evaluate as that patient came through in terms of visiting to get them to an actual diagnosis. So that process is ongoing, and we're very happy just overall in terms of understanding that there is this addressable opportunity in terms of getting patients to a quicker diagnosis. And there's also an interest from the physician perspective with a lot of aha moments to get patients to this particular diagnosis. So that process is ongoing. Operator: This concludes today's question-and-answer session. I will now hand back to David Meeker for closing remarks. David Meeker: Okay. Well, thank you again for tuning in this morning. As you've heard and hopefully understood, we're really excited about where we are. We made great progress and set ourselves up for some interesting and pretty important milestones in the fourth quarter and a lot that's going to continue to enroll in 2026. So we look forward to the next update. Thanks all. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: " Robert Lavan: " Thomas Shannon: " Lev Ekster: " Matthew Boss: " JPMorgan Chase & Co, Research Division Steven Wieczynski: " Stifel, Nicolaus & Company, Incorporated, Research Division Randal Konik: " Jefferies LLC, Research Division Jason Tilchen: " Canaccord Genuity Corp., Research Division Jeremy Hamblin: " Craig-Hallum Capital Group LLC, Research Division Michael Kupinski: " NOBLE Capital Markets, Inc., Research Division Eric Walt: " Operator: Thank you for standing by. My name is Liz, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Lucky Strike Entertainment First Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Bobby Lavan, Chief Financial Officer. Please go ahead. Robert Lavan: Good afternoon to everyone on the call. This is Bobby Lavan, Lucky Strike's Chief Financial Officer. Welcome to our conference call to discuss Lucky Strike's First quarter 2026 earnings. Today, we issued a press release announcing our financial results for the period ended September 28, 2025. A copy of the press release is available in the Investor Relations section of our website. Joining me on the call today are Thomas Shannon, our Founder and Chief Executive; and Lev Exter, our President. I'd like to remind you that during today's conference call, we may make certain forward-looking statements about the company's performance. Such forward-looking statements are not guarantees of future performance, and therefore, one should not place undue reliance on them. Forward-looking statements are also subject to the inherent risks and uncertainties that could cause actual results to differ materially from those expressed. For additional information concerning factors that could cause actual results to differ from those discussed in our forward-looking statements, you should refer to the cautionary statements contained in our press release as well as the risk factors contained in the company's filings with the SEC. Lucky Strike Entertainment undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances that occur after today's call. Also during today's call, the company may discuss certain non-GAAP financial measures as defined by SEC Regulation G. The GAAP financial measures most directly comparable to each non-GAAP financial measure discussed and the reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure can be found on the company's website. I will now turn the call over to Tom. Thomas Shannon: Thanks, everyone, for joining today's call. I am Thomas Shannon, Lucky Strike's Founder and CEO. Starting with performance. Total revenue in the quarter grew 12% and adjusted EBITDA was up 15%. Same-store sales were close to flat at negative 0.4%, with retail revenue up 1.4% and league revenue up 2.1%, which shows healthy customer engagement across our core bowling and entertainment venues. We continue to see encouraging momentum in our online booking funnel, which grew double digits in the quarter. Our offline events business, which on a dollar-weighted basis is mostly corporate event bookings, was down 11%, creating roughly a 160 basis point drag on total comps. That said, trends have clearly turned the corner. October was our strongest month of the year for both offline and total events, which gives us confidence heading into the holiday season. Our primary focus remains on improving free cash flow through disciplined cost management and capital efficiency. CapEx for the quarter came in at $26 million, down from $42 million a year ago, reflecting tighter capital allocation and benefits from our procurement function. In July, we made a strategic real estate investment, acquiring the land and buildings for 58 of our existing locations for $306 million. This enhances flexibility, lowers exposure to future rent increases, and sets us up for future accretive sale-leaseback or refinancing opportunities should we choose to pursue those. In September, we closed a $1.7 billion refinancing that extends debt maturities to 2032 at an average weighted cost of capital of 7%. We also expanded our roughly 370 location platform through the acquisition of 2 large and very profitable water parks, Raging Waters Los Angeles and Wet 'n Wild Emerald Pointe in Greensboro, North Carolina. along with 3 high-performing family entertainment centers in Southern California, the 24-acre Castle Park in Riverside, California, Boomers Vista Boomers Palm Springs. Together, these destinations welcome more than 1 million annual guests and broaden our leadership across water parks, amusement, and family entertainment. The $90 million transaction is expected to generate returns above our historical average, with most of the financial contribution coming next summer. We also continue to invest in our people. This quarter, we welcomed Brandon Briggs as Chief Revenue Officer, bringing global experience from major cruise lines, and Laura Cobos as Vice President of Field Training following her 3-decade career at Texas Roadhouse. Both are already having a measurable impact on our service and culture. Our teams are energized, engaged, and executing with precision. We're selling with confidence, serving with heart, and continuing to raise the bar for hospitality and out-of-home entertainment, keeping it short and sweet. With that, let's turn it over to Q&A. Operator: [Operator Instructions] Your first question comes from the line of Matthew Boss with JPMorgan. Matthew Boss: It's Amanda Douglas on for Matt. So Tom, to start, could you break down the drivers of 1Q's roughly flat comp as you look across your walk-in retail business relative to events? And specifically on events, could you elaborate on the clear signs of recovery that you cited heading into the holiday? Lev Ekster: This is Lev Ekster speaking. So I'll just quickly touch on retail and league, which I think were major drivers, and we actually saw continued strength in both categories in this most recent period, and then I'll turn it over to Bobby to talk more specifically about events. But we saw obviously very healthy retail foot traffic. The numbers indicate that finishing nearly 1.5% up. But I think even more encouraging is what we're seeing in terms of a response from our lead customer, which I would argue is maybe our most price-conscious customer. And yet, we were up in leagues over 2%. I want to point out this most recent period of October, we closed up over 5% in leads, and that was driven by a combination of an increase in headcount of boulders for our fall flooring, but also we were seeing an increase in the average price per game. So we saw an increase in lineage revenue as well. And fortunately, with the increased headcount, we're also seeing that drive our food and beverage attachment from the League Bowler. In fact, we've had 5 consecutive weeks of all-time high food and beverage revenue coming from our league bowlers. So we found that to be super encouraging. And Bobby has been a lot closer with the event business. I'll turn it over to him. Robert Lavan: So the event business, which we talked about sort of the -- the main sort of headwind the business has had in the corporate events business. That business was down in the September quarter, sort of mid-single digits. October, we had sort of the best month we've had in more than 1.5 years. So we've changed the way we're operating that business. Additionally, we're leaning into online more, and online is growing strong double digits to sort of make up for some of the headwinds we're seeing mostly from a macro perspective on the corporate events side. Matthew Boss: And Bobby, just to follow up on the adjusted EBITDA margin expansion in the first quarter. Could you expand on the drivers of the 70 basis points of expansion? And then just any puts and takes to consider on the progression of EBITDA margins over the balance of the year? Robert Lavan: Yes. So I mean, revenue is going to drive the most amount of operating leverage on an EBITDA margin perspective. That's offset by -- we did invest an incremental $2.5 million in marketing, and we have $1 million of higher sort of insurance costs as we bring other businesses into the system. From an EBITDA margin cadence, the first quarter of 2026 is the lowest margin quarter. I would say you should expect 600 to 800 basis points margin improvement as we go into the higher winter quarters and coming back down to around where we are now when we get into the June quarter. Operator: Your next question comes from the line of Steve Wieczynski with Stifel. Steven Wieczynski: So Bobby, wondering maybe how we should think about the cadence for the rest of the year in terms of same-store sales. And then maybe if there's anything we should be thinking about in terms of whether it's headwinds, whether it's tailwinds over the last 3 quarters of the year. So just kind of we can kind of get our models in the right spot moving forward. Robert Lavan: Yes. So the next few quarters are pretty clean on an apples-to-apples basis. You have sort of New Year's is falling in the third quarter that happened last year. We have -- some of the growth -- inorganic growth came in the first quarter of '26 is from the acquisition of a water park in North Carolina, of another water park in L.A., coming in in sort of the June quarter. So you're going to have the strongest inorganic growth period or quarters in the first and the fourth quarter. From a same-store sales perspective, we guided the year to 1% to 5%, and that holds. You can kind of see how that should flow through. But ultimately, we expect for same-store sales to be in that range for the second and third quarter, and then the fourth quarter being a little bit better. Steven Wieczynski: And then second question is probably for Lev. But maybe a little bit of color around attachment rates in terms of retail customers. Wondering what you've seen recently in terms of whether it's F&B or amusement spend, any material changes in their spending patterns once they're inside your properties? Robert Lavan: I think we're more and more encouraged by our food attachment. And I think it was actually your question, maybe a year ago on a similar call where we talked about us leaning into food and seeing just a lot of organic upside within our business, improving the food quality, the food selection, the innovation in our food program. I'm happy to report that in Q1, food is actually up 10%, way outpaced our overall retail, which was up 1.4%, and we're going to continue doing that. And we have now an ecosystem focused around food attachment. And I don't think we've even scratched the surface of what our opportunity here is -- we're now focused on selling value to our customers right at the point of entry from the front desk. We're offering a product called the Pizza and Picture combo. We get a large cheese pizza and either a picture of soda, beer, or margarita right at the front desk. It's a huge win for us. In the first 5 months of selling this product, we sold over $8.5 million worth of pizza and picture combos. First of all, it's a great product. It offers a lot of value to the consumer. I think it's helping drive our NPS score higher, which is up year-over-year. But also, it gets the food out to lean faster when they order from the front desk, which means we get a chance to sell more food and beverage products during their experience with us. We've introduced platters for larger groups. 3 months ago, we launched 2 platters. It's a combination of some of our more popular products, feed a group of 8 to 10 individuals, 3 months' worth of selling platters, $1.3 million. We launched our craft Lemonade program. This goes on and on and on, and we're going to continue to launch innovative products. So we've seen great success with craft Lemones. We're now testing BOA iced teas and dirty sodas, which are really popular industry-wide. We're leaning into training. As you heard, we introduced a new VP of Field Training and Laura Cobos. We're going to empower our associates and our centers to become even better at sales. And fortunately, for them, they have a better product to sell. So super encouraged. The numbers speak for themselves. We're not done. You're going to continue to see innovation and value offered to our customers with better sales tactics. I think that combination is going to really power this business. Operator: Your next question comes from the line of Randal Konik with Jefferies. Randal Konik: Maybe give us some updates on the progress on the Lucky Strike rebrand. You mentioned in the press release, I think you're up to 74. Maybe give us some perspective on how much more you have to go and the timing and framing up of that, how the economics are looking, or the metrics are looking of the Lucky Strike's rebrands versus the balance of the chain? And just that would be super helpful to get some more color there. Lev Ekster: Thanks for the question. This is Lev. So you're right, we're up to 74. We set a goal to be at 100 by the end of this calendar year. We're still on track for that. We anticipate being at 200 by the end of 2026. Again, really important step for us because, as you know, we've significantly increased our marketing spend and having the ability to focus our marketing spend across 2 brands, that being AMF and Lucky Strike versus trying to execute across 3 brands when you consider Bowlero is going to give us a lot of, I think, more value for our dollars in marketing spend. It will allow us to do more national campaigns. Obviously, the economics bode well for that when you talk about pushing marketing across 200 Lucky Strike locations. I think we're also seeing a lot stronger F&B attachment at the Lucky Strikes. And in terms of the value of doing these rebrands, 2 of our strongest properties in the portfolio, that being Times Square and Chelsea Piers, they have both been rebranded to Lucky Strike, and they had very strong results. Times Square was up in retail revenue 36% last period. So it's resonating. And I don't think it's a mystery why, when you visit these properties, they're stunning. Obviously, the menus are better, the level of hospitality, the experience is top-notch. And so the more of these we do, I think the stronger our results are going to become. Randal Konik: Back on the events side of the business, I believe you talked about starting to turn. Was there also a geographic component? I think in the past, California might have been weighing a little bit on the events business as well. Just give us some perspective on just any geographic disparity in that area -- in that part of the business? And where do we see that kind of trending going forward? Robert Lavan: Yes. So if we were not in California or Washington, we would have comped up low single digits for the quarter. California and Washington continue to see significant amount of Silicon Valley layoffs. We are leaning in. We are accelerating sort of marketing spend. We are accelerating sort of a go out and get the business mentality on the events side. So some of it is just that we have to kind of deal with this storm and weather the storm on massive layoffs, corporates are not going to have celebratory parties. We're leaning in. We're ultimately seeing the turn. The events business in New York, strong events business in Texas, Florida, strong, really is ex-California, we would -- the business would have better results and already very outstanding results. Operator: Your next question comes from the line of Jason Ross with Canaccord Genuity. Jason Tilchen: I wanted to start with maybe some clarification on walk-in retail trends that you've seen, obviously, the comp, how it trended through Q1, and then what you've seen so far in October as well? Robert Lavan: Yes, it's been positive. I mean we had -- in the summer, we had season pass. In October, we've seen mid-single digits on retail. So again, very powerful trend on the retail side. It really comes down to we are winning on retail, we are winning on leads, winning on food, we're winning on alcohol, we're winning on amusements. The acquisitions we've done are extremely accretive to the business on an inorganic basis. We just have to get through the comps on the corporate events business, which again, is an important part of the business this quarter, but it becomes much less important of a business when we go into the third and fourth quarter. Jason Tilchen: And you mentioned the inorganic piece. Wondering if you could just go out a little bit more about some of the performance of the water parks and sort of their first full season with you guys? And maybe what are some of the operational learnings after going through that full summer period? Robert Lavan: Yes. So we have 2 water parks that we owned through sort of the full -- 3 water parks that we own through the full season, Raging Waves, Big Destin, and Shipwreck. It's a very interesting business because you make all of your revenue in 100 days. Our procurement F&B synergies are massive. We are learning to have more of the hourly workers. So it's a little bit of a different business model. But the thing that's been paramount is the consumer is responding to premium value, right? And what do we -- what is premium value? Like we're improving the food at Raiging Waves. And so food sales at Raging Waves were up 10% year-over-year. We brought in alcohol to Raging Waves, right? And that's obviously been a massive tailwind. But we're also delivering these guys value by having bring-a-friend days during the week and things like that. So ultimately, these businesses are great. We did market raging waves with our -- the 20-plus property Bowling properties we have in Chicago that work -- and we're looking forward to next year, where we're going to have a pass that you can use at Ragging Waves and at our Bowling centers in Chicago, a capacity you can use at Boomers, Boca Raton and our Bowling alleys in South Florida. And so ultimately, that is the next part of our business. Lev Ekster: When you look at the cadence of improvements at these water parks, I think the best comp for you would be to consider our Boomers locations, which fell into our comp in October, and we finished that month up good single digits. So we've had those, obviously, for a bit longer, which gave us an opportunity to improve the facilities, improve the game selections and redemption, improve the menu, improve the staffing and the training of the staff, and the results are there. So as an example, we just hosted a family fest event. It's sort of our grand reopening for the Boomers locations once we complete renovations. We hosted at our Boomers Irvine location this past Sunday. 4,000 attendees, the community couldn't believe the quality of the product, and we expect similar results with our other assets once we have a little time to improve them and run them the Lucky Strike Entertainment way. Operator: Your next question comes from the line of Jeremy Hamblin with Craig-Hallum. Jeremy Hamblin: This is Will on for Jeremy. Most of my questions were answered, but just one on the debt refi, just how we should think of interest expense for the full year? Robert Lavan: I mean it's $1.7 billion times 7% plus $60 million for the capitalized leases. Operator: Your next question comes from the line of Michael Kupinski with NOBLE Capital Markets. Michael Kupinski: It's [ Juobuchler ] on for Michael Kupinski. My first question piggybacks off of a few other questions that have already been asked. But just curious about the relationship between food and beverage revenue and Bowling revenue, and Lucky Strike locations compared to Bowlero locations. And just curious how those ratios are trending and potential upside in food and beverage when all Bowlero locations have been converted to Lucky Strike locations. Lev Ekster: It's a really interesting question, and this is Lev, by the way. And it's really hard to give you an answer because I don't think that when we went down this journey of enhancing our food program, I couldn't have imagined that we'd be at 10% in Q1 of this fiscal year. And we're not done yet. The innovation continues. We just finished the Board meeting yesterday, where we talked about the next wave of products that we're going to be introducing a bit of tasting. They're incredible. And what's important is they're restaurant quality, they're not quality for a bowling alley. So I don't think we've scratched the surface of our food and beverage program. I think you're going to see a lot less of our guests eating and drinking before they come, and certainly a lot less after they leave. When you pair a quality product, a value offering, enhanced marketing of that product, enhanced training of our staff to sell that product, I think the sky is the limit. And that's just on the Lucky Strike side. I mentioned earlier, our league bowler headcount is up. So going into this fall flooring, we were up nearly 3,000 bowlers for our traditional leagues. We're also introducing a league bowler menu with items exclusive to our league bowlers, and we're marketing that league bowler menu, which we've never done before. And now we're adequately staffing our centers for the nights that the leagues are in. There was this legacy mindset that league bowlers were not big on purchasing food and beverage. So historically, the centers weren't staffed the same way for league nights as they were staffed for retail nights. Well, we've ripped up that notion, and now we're staffing the same way. And we're seeing a response to that. So I mentioned earlier in the call, this is a real stat, 5 consecutive weeks where we've set an all-time high in food and beverage sales for the League Buller menu. I don't think we've scratched the surface there yet as well. So the league bowlers are responding. They're cost-conscious. But when you give them value, they gravitate towards it. So this league bowler menu is performing really well. The staff on the floor are selling. They're making more money. They're happier. It's a win-win, and I think we're going to get it on both sides at our traditional centers with the league bowlers and at our more experiential Lucky Strikes. Robert Lavan: So I'll give you some stats. Last quarter, locations that are branded Lucky Strike had 50% higher F&B to Bowl revenues than the Bowleros and AMS. If we are able to normalize that, that's a $125 million to $150 million pickup. Michael Kupinski: And then my next question, I'm just curious if you could talk a little bit about the promotional activity outlook. Just curious if there are any large promotional offerings planned over the winter months. I know the Summer Pass generated strong results. So just curious if there's anything like that planned over the winter. Robert Lavan: Yes. So we're seeing promotional environment slow down. I think it was a race to the bottom last year with some of our competitors, and they've realized how much that's hurt their business. So we're seeing the benefit of that pulling back. We continue to be very tactical. Online, you generally have to offer some sort of call-to-action promotion to drive purchase. But we're being a little bit more tactical about that. We'll have a Black Friday sale. Maybe we won't have a sale in the first few weeks of December, where our lanes are 100% utilized for events. Operator: Your final question comes from the line of Eric Walt with Axis Capital. Eric Walt: Just kind of want to follow up again on the -- 2 questions. One -- first one kind of follow-up on the F&B side. With the food up 10% in the quarter, you mentioned versus 1.4% for overall retail, how much of that was price versus general improvement in attachments across the various cohorts? And how much room do you think you have to raise F&B prices from this point forward? And remind us does -- I'm sorry, long question, but remind us, does the 1.5% comp guidance for this year, does that include any assumption of taking price on F&B? Robert Lavan: So in the quarter, we took no price on food and beverage. So that performance is purely attachment. Now as we roll out new products, I wouldn't call it taking price, but if the price will match the quality of the product we roll out. So naturally, some items will raise the ticket averages for us. But those assumptions do not take price into consideration at all. So any price that we take will just supplement the assumptions. Eric Walt: And the last question, kind of obviously, with the big start to the year, the major acquisition, and then kind of the real estate purchase as well, how would you frame kind of the focus for the remainder of this year? I mean, obviously, I assume you'd be opportunistic if something does come up, given the environment in, but is this still a year of an M&A focus? Is it shifting a little bit more towards organic, given what you did at the start of the year? And then how much needs to be invested in those acquisitions that you did at the start of the year, as they kind of come on board? Robert Lavan: Yes. Great question. We'll spend $95 million on acquisitions right now. I -- you never say never, we'll always be opportunistic. Right now, we're seeing the highest returns internally, whether it's marketing spend, whether it's F&B, whether it's a lot of these specials and bundles we're selling at the front desk. We are very focused on driving free cash flow right now. So unless the deal is a home run, I don't think we would do it this year. Also, as you can see, we reported $26 million of CapEx. I think we'll come in below our guidance this year for $130 million of CapEx as we really focus on internally. To your question about acquisitions, the acquisitions we've done and the CapEx that's needed, there is a few million that's needed in North Carolina. There's a few million that's needed in L.A. We have a commitment to spend a certain amount in L.A. every year. The rest of the acquisitions, we're digesting right now, and we kind of want to see what is the opportunity there. There is some opportunity in amusements, but that's a few million here and there. So really, right now, the focus is organic. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good afternoon, ladies and gentlemen, and welcome to the CAVA Q3 2025 Earnings Call. [Operator Instructions] This call is being recorded on Tuesday, November 4, 2025. I would now like to turn the conference over to Matt Milanovich, Head of Investor Relations. Please go ahead. Matt Milanovich: Good afternoon, and welcome to CAVA's Third Quarter 2025 Financial Results Conference Call. Before we begin, if you do not already have a copy, the earnings release and related 8-K furnished to the SEC are available on our website at investor.cava.com. The purpose of this conference call is to give investors further details regarding the company's financial results as well as a general update on the company's progress. You will find reconciliations between non-GAAP financial measures discussed on today's call to the most directly comparable financial measure calculated in accordance with GAAP to the extent available without any reasonable efforts in today's earnings release and supplemental deck, each of which is posted on the company's website. Before we begin, let me remind everyone that this call will contain forward-looking statements. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Investors should be aware that any forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those discussed here today. These risk factors are explained in detail in CAVA's most recent annual report on Form 10-K as may be updated by its reports on Form 10-Q and other filings with the SEC. Please refer to these filings for a more detailed discussion of forward-looking statements and the risks and uncertainties of such statements. All forward-looking statements are made as of today and except as required by law, CAVA undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise. And now I'll turn the call over to the company's Co-Founder and CEO, Brett Schulman. Brett Schulman: Thanks, Matt, and welcome to the call, everyone. During the third quarter of 2025, we continue to strengthen our leadership in Mediterranean, a category we have pioneered and are rapidly growing while staying true to our mission of bringing heart, health and humanity to food. As consumers today face a challenging environment, the relevance of Mediterranean cuisine and the way we deliver at CAVA continues to resonate deeply. This differentiation enables strong average unit volumes, consistent value creation and the structural strength of our model. With growing market share and significant white space ahead, we remain confident and steadfast in our ability to create lasting value, build enduring guest loyalty and reinforce our position as the clear leader of the Mediterranean category. Our third quarter highlights include a 20% increase in CAVA revenue and a 66.8% increase over the last 2 years. CAVA same restaurant sales growth of 1.9% and restaurant-level profit margin of 24.6%, 17 net new restaurants, ending the quarter with 415 restaurants, a 17.9% increase year-over-year. Adjusted EBITDA of $40 million, a 19.6% increase over the third quarter of 2024, net income of $14.7 million and $23.3 million in year-to-date free cash flow. As I've shared in prior quarters, our brand proposition is strong and continues to strengthen as reflected in our expanding market share. Since 2019, while overall restaurant industry sales have grown, industry transactions have declined, yet CAVA has not only maintained but increased our market share significantly by delivering on our promise of high-quality food, brand relevance, curated guest experiences and seamless convenience. During that same time frame, we have worked relentlessly to make our food more accessible to guests, underpricing CPI by almost 10%, while taking less than half the aggregate, 34% price increases of industry peers. At the same time, we recognize that today's environment is creating real pressures for consumers, especially younger guests who are making more deliberate choices about where they spend. It's incumbent upon restaurants to deliver exceptional experiences and differentiated value to guests. That's why the foundation my co-founders and I built 15 years ago is more important than ever. From day 1, our aspiration was simple, to make our Mediterranean cuisine accessible to communities across the country, delivering it with welcoming hospitality while serving as a platform for our team members to build a career, not just have employment. This concept essence continues to guide everything we do to this day. As we capture the white space opportunity ahead of us, our growing market share is driven by the intention rooted in our first strategic pillar, expand our Mediterranean Way in communities across the country. During the third quarter, we opened 17 net new restaurants, bringing our total restaurant count to 415 locations across 28 states and the District of Columbia. Amongst them was our highly anticipated Brickell opening in Miami where the energy and enthusiasm from our guests was palpable, a powerful reminder that with every new CAVA, we're not just growing our footprint, but also deepening connection and fostering community. Recent openings also highlight projects sold, our restaurant redesign initiative that brings the Mediterranean Way to life through warm tones, greenery, natural light and softer seating, design elements that turn our restaurants into welcoming places to dine. The project sold prototype is now finished and the complete design will roll out in new openings next year. And just as our environments invite connection so do our bold Mediterranean flavors. Earlier this quarter, we introduced our latest protein innovation chicken shawarma, juicy roasted chicken breasts marinated in a signature spice blood and hand stacked on a spit. The launch performed to our market test expectations with incidence levels that showed strong guest responsiveness and healthy engagement across our restaurants. Another example of how distinctive, innovative and satisfying flavors rooted in health continue to resonate with our guests. That same spirit of innovation comes through with our recent salmon market test, which has shown encouraging results. Salmon is a natural fit for our menu and represents an exciting milestone as our first ever seafood offering. Our roasted flaky fillet marinade in a subtly sweet [indiscernible] barista, red wine vinegar and bold spices not only complements our Mediterranean flavors beautifully, but also broadens the variety we can offer guests. Early results reaffirm the strong potential we see and if performance continues, we will plan to expand salmon more broadly across our restaurants in late spring of 2026. While proteins like salmon and chicken shawarma remain a critical focus of our culinary innovation pipeline, we also know that smaller touches can carry just as much weight in keeping our guests excited. Our pita chips are a perfect example. Last month, we introduced cinnamon and sugar pita chips, dusted with cinnamon sugar and the hint of cardamom paired with honey for dipping. The sweet twists on a fan favorite that brings both snacking and dessert occasions to life. Shifting to our second pillar, deepen personal relationships with guests even as we scale. This past October marked the 1-year anniversary of our rewards, reimagined, relaunch. And since then, the program has grown by approximately 36% and has become a key platform for connecting with guests in a more personal, meaningful and creative ways. Building on that momentum, we recently introduced tiered status levels as the next phase of the program. Through our new sea, sand and sun structure, members now enjoy differentiated benefits and surprise and delight experiences designed to celebrate their loyalty and strengthen long-term engagements. As an extension of our brand spirit of generosity, we also launched status matching to welcome new members and encourage deeper participation. While status matching is a first of its kind offering in our industry, we see it simply as another way to express our concept essence. The latest evolution of our program also includes an expanded rewards catalog with seasonal offerings and fresh new ways to engage. With every enhancement, our goal is to create a deeper sense of belonging and continuity for our guests, whether it's elevating hospitality, improving order accuracy or better speed of service at our core is our commitment to building a strong operational foundation. And regardless of near-term cyclical pressures on the consumer, we're doubling down and focusing now more than ever on delivering for the long term with exceptional guest experiences and ensuring that our restaurants are staffed with team members that are equipped, empowered and trained to run great restaurants every location, every shift, our third strategic pillar. The role technology plays in our restaurants is important and providing our team members with the tools to deliver consistently great experiences as a key focus area. An initiative in that spirit is our new kitchen display system which we are now on track to roll out to at least 350 locations by year-end with over 200 restaurants live today. We are continuing to see encouraging results as restaurants with the new KDS are experiencing higher guest satisfaction scores, driven by improved digital accuracy and proactive guest order status notification capabilities. In addition to improvements across technology, we're also investing in equipment that makes our restaurants easier to run, such as our TurboChef ovens. All CAVA restaurants are now equipped with a TurboChef oven. These ovens allow for faster, more consistent cook times, enabling simpler execution in our restaurants while elevating food quality. Both the TurboChef and KDS investments helped reinforce execution in our kitchens while allowing our teams to focus on what matters most, delivering a great guest experience. We are at a meaningful moment in our growth journey, and we know it is crucial to invest in training and developing our team members. Today, I'm excited to introduce our new Flavor Your Feature initiative, a holistic team member development program designed to attract, develop and retain CAVA's feature leaders. One of the first actions under this initiative is the launch of our new Assistant General Manager program, an evolution of our current general manager and training role. This role provides more experienced leadership in our restaurants on more shifts throughout the week, ensuring a clear #2 leader is always in place. It will also create a stronger pipeline of roll-ready leaders to take on the GM role as we scale and open more restaurants. Today, about 20% of our leaders are ready for immediate elevation, 50% will be roll ready with additional training over the next quarter and the remaining 30% likely sourced externally. The AGM role is just one component of a broader leadership initiative that we are excited to share more about in the quarters ahead. Our commitment to developing team members into restaurant managers remains a core near-term focus, and we're excited about the opportunity to build the next generation of CAVA leaders. You can see the power of that commitment in stories like that, [ Angelo Miranda ] at our Millennium location. Angelo started as a team member, eager to learn and grow, under the guidance of his then General Manager, Ruben Holguin. He learned the business from the ground up. He developed his leadership skills through consistent coaching, feedback and belief in its potential. Over the years, that investment has paid off. Today, Angelo leads the same restaurant where he began his journey now as a General Manager, inspiring the next generation of team members to do the same. When I visited Millennia earlier this month, I saw firsthand the culture of growth and pride that Angelo and his team have built. Angelo was quick to introduce me to his high potential team members he is developing as future CAVA restaurant leaders. It's a true reflection of what happens when we invest in people and create pathways for them to lead. And Angelo's original GM, Ruben, he is now an area leader overseeing 9 restaurants. Our mission is to bring heart, health and humanity to food, and it continues to drive our strategy, shape our culture and inspire the work of more than 13,000 team members each day to our teams and to all of you who share in this journey. Thank you. And with that, I'll pass the call off to Tricia to walk you through the financials. Tricia Tolivar: Thanks, Brett, and hello, everyone. CAVA revenue in the third quarter of 2025 grew 20% year-over-year to $289.8 million and 66.8% compared to the third quarter of 2023. During the quarter, we opened 17 net new restaurants, bringing our total CAVA restaurant count to 415 restaurants. CAVA's same-restaurant sales increased 1.9%, primarily from menu price and product mix with guest traffic approximately flat. On a 2-year basis, same-restaurant sales accelerated 350 basis points to 20%. On a 3-year basis, same-restaurant sales remained relatively stable at 34.1%. Despite lapping strong prior year results and navigating macroeconomic pressures, we continue to grow our market share and are confident in the underlying structural strength of the business. Our new restaurant productivity remains above 100%, underscoring the resonance of our brand. CAVA restaurant level profit in the third quarter was $71.2 million or 24.6% of revenue versus $61.8 million or 25.6% of revenue in the third quarter of 2024, representing a 15.1% increase. CAVA's food, beverage and packaging costs were 30.1% of revenue, higher than the third quarter of 2024 by 20 basis points. This slight increase reflects the impact of tariffs and our limited time-only chicken shawarma offering. CAVA labor and related costs were 25.5% of revenue, an increase of approximately 10 basis points from the third quarter of 2024. This increase in labor and related costs reflects investments in our team member wages of approximately 2%, partially offset by leverage from higher sales. CAVA occupancy and related expenses were 6.7% of revenue, an improvement of 10 basis points from the third quarter of 2024, driven primarily by increased sales leverage. Cava other operating expenses were 13.1% of revenue, reflecting an increase of 80 basis points from the third quarter of 2024. This increase was due to a higher mix of third-party delivery, insurance costs and other individually insignificant items. Shifting to overall performance. Our general and administrative expenses for the quarter, excluding stock-based compensation and executive transition costs were 9.4% of revenue compared with 10.8% of revenue in the third quarter of 2024. This 140 basis point improvement was primarily due to lower performance-based incentive compensation, leverage from higher sales, lower legal costs, partially offset by investments to support our future growth. Preopening expenses were $4.9 million in the current quarter compared with $2.8 million in the prior year quarter. The $2.1 million increase includes a higher number of units under construction and increased costs on a per unit basis. Adjusted EBITDA for the third quarter was $40 million, a 19.6% increase versus the third quarter of 2024. The increase in adjusted EBITDA was primarily driven by the number of and continued strength in new restaurant openings and leverage in general and administrative expenses. Equity-based compensation was $3.3 million in the third quarter compared with $3.5 million in the prior year quarter. We anticipate full year equity-based compensation to be between $18 million and $20 million, which includes the 2025 grants as well as the impact of forfeitures. In the third quarter, our effective tax rate was 28.6%. For the full year fiscal 2025, we expect our effective tax rate to be between 10% and 12%. As a reminder, our cash taxes will continue to be immaterial until we fully utilize our net operating losses. During the third quarter, we reported $14.7 million of GAAP net income compared to $15 million of adjusted net income in Q3 of 2024. Diluted EPS was $0.12 in the third quarter compared with adjusted diluted EPS of $0.13 in the third quarter of 2024. The slight decrease was due to the allocation of income taxes in the prior year, excluding the release of the valuation allowance, partially offset by higher earnings before taxes. Turning to liquidity. At the end of the quarter, we had 0 debt outstanding, $387.7 million in cash and investments and access to a $75 million undrawn revolver with an option to increase our liquidity as needed. Year-to-date Q3 cash flow from operations was $144.5 million compared to $131.2 million during the year-to-date period in 2024. Year-to-date, Q3 free cash flow was $23.3 million. Now to our outlook for full year 2025, we expect the following: 68 to 70 net new CAVA restaurant openings. CAVA same restaurant sales growth of 3% to 4%. CAVA restaurant level profit margin between 24.4% and 24.8%. Preopening costs between $18 million and $19 million and adjusted EBITDA, including the burden of preopening costs between $148 million and $152 million. I'd like to provide some additional context around our updated guidance. As we exited the second quarter, we saw same restaurant sales reaccelerate and we're encouraged by the sequential improvement. However, as the third quarter progressed, we experienced a moderation in trends reflecting broader macroeconomic pressures. Entering the fourth quarter, we're seeing further moderation as we continue to lap stronger same restaurant sales from the prior year. As such, we have incorporated these trends into our outlook for the remainder of 2025. Our same-restaurant sales guidance reflects both the benefit of our recent chicken shawarma launch, which performed in line with market test expectations and the ongoing macro headwinds impacting the industry. Despite these macro pressures, our 2-year same-restaurant sales stack accelerated by 350 basis points to 20% underscoring the resilience of our brand and the strength of our guest engagement. Looking ahead, we remain confident in the long-term structural health of the business reaffirmed by our strong AUVs and new restaurant performance. Our most recent 2025 cohort is trending above $3 million in AUV, with new unit productivity continuing to exceed 100%. Turning to restaurant level margins. Our guidance reflects dynamics we experienced in the third quarter and the anticipated impact of seasonality on margins. As we look ahead to next year, we remain confident in the structural foundation of the business while being mindful of ongoing macroeconomic pressures. Our long-term algorithm targets low to mid-single-digit same-restaurant sales growth and we will approach our 2026 outlook with appropriate discipline, taking into consideration our strong pipeline of traffic-driving initiatives. In addition, given the health of our 2026 real estate pipeline, we anticipate at least 16% unit count growth. As we navigate today's dynamic environment, our mission to bring heart, health and humanity to food continues to resonate with guests across the country and is more important than ever. We remain the clear leader of our category, supported by a powerful concept and competitive positioning that are both differentiated and durable. None of this would be possible without our exceptional teams across our restaurants and support centers. This dedication brings our mission to life every day to drive meaningful experiences for our guests. With that, I will turn the call back over to the operator to open it up for Q&A. Operator: [Operator Instructions] We will now take our first question from Andy Barish with Jefferies. Andrew Barish: Last quarter, you kind of stack rank some of the choppiness in same-store sales from the steak lap to a little bit of consumer balances to the honeymoon. Can you kind of just let us know on the honeymoon side of things, if that's changed materially? And I'm assuming most of the choppiness you're seeing now is macro-related, but anything geographically you want to point out would be helpful. Tricia Tolivar: Andy, thanks for the question. So certainly, the honeymoon impact is very similar to what we experienced last quarter, no change there. We're not seeing anything geographically to call out. So it's more around the macro environment and the pressure on the consumer and certainly lapping the strong same-restaurant sales results that we had in the third quarter of the prior year. So we've noted it on the call, but on 2-year stack basis, we, in fact, accelerated our same-restaurant sales by 350 basis points to 20%. Operator: Our next question comes from Brian Mullan with Piper Sandler. Brian Mullan: Just a question on the salmon test. Brett, in the prepared remarks, it sounds like it's going well. Just wondering if you could elaborate a bit on what you're seeing in test. Anything interesting from a daypart perspective between lunch and dinner or maybe just a guest perspective, age, gender, income just -- and also how it's going with the operations? Brett Schulman: Thanks, Brian, for the question. We did know we have TurboChef ovens in every restaurant now, which is the equipment we use to roast the salmon. So it's a very easy cook procedure and prep and whole procedure. And we've been very encouraged by the results. We have seen it drive incremental occasions and its appeal has been broad-based from a consumer standpoint as well as a daypart standpoint. So it is a unique new menu items to add to the variety of our proteins. It's our first seafood item and excited at its potential. And if things continue to progress on the current track, as we noted, and -- as I noted in the prepared remarks, we expect to launch it in late spring in 2026. Operator: Our next question comes from David Tarantino with Baird. David Tarantino: Brett, I had a question about the operations. So I know you made a change in leadership there during the third quarter. And I was wondering if you could just address that change and why that happened? And then I guess you mentioned also tonight doubling down on guest experience and operations. So wondering if you could elaborate on whether you're addressing specific issues or whether that's more of an opportunistic statement as you think about where the business is today? Brett Schulman: Yes, David, over the course of our 15-year journey, one of the things that's been instrumental in leading to our success is always being proactive and staying in front of the business and making sure we're bringing on the capabilities that we need for the next chapter of our journey and where we're going, not just where we've been and where we are. And so that true transition was in that spirit. And as it relates to the operational opportunities, this is the most intense discount environment since the Great Recession. And our value proposition, we believe, is much more holistic than a price point. And one of the best things that we can do is deliver exceptional guest experiences. That's foundational to driving traffic over the long term and driving a competitive advantage in concert with our unique differentiated Mediterranean cuisine. And so we're just doubling down on that. It's been core to who we are throughout our journey, and we want to make sure that we're putting our best foot forward in a time when consumers are becoming increasingly discerning about where they're spending their dollars and that we also have the breadth and depth of pipeline to continue to support the new restaurant openings that are opening at record levels and opening them with operational integrity. Operator: Our next question comes from Eric Gonzalez with KeyBanc. Eric Gonzalez: You talked about having a strong pipeline of traffic-driving initiatives for the next year. Maybe you could expand on that a bit. It sounds like you've got at least one protein on deck with salmon in the spring, but I'm curious if you have anything else exciting to call out so maybe pita chips size, beverages or desserts that might be interesting and worth noting. Brett Schulman: Yes. Thanks for the question. I think the pita chip piece would certainly be relevant next year sooner than beverages and desserts. Those are definitely category opportunities for us over the long term, but our pita chip platform for innovation has been very successful, and we continue to see opportunities to excite guests through that platform as well as the salmon launch, and then we will be expanding our catering test later in '26 to a second market. We're currently testing catering in Houston. I wouldn't expect the chain-wide launch, but later in '26, we plan to expand it to a second market in concert with Houston to continue to test and learn and position ourselves for a broader launch. And then lastly, I'd say, on the marketing front, we have been very efficient and lean in our marketing spend over time, and we continue to test and learn and understand how we can show up in those channels effectively, especially as we communicate our value proposition and our message in a heavily discounting environment. And so next year, whether through collaborations or some of the other marketing partnerships that we have opportunities to forge, that's another area that we have not -- or another lever that we haven't pulled in a meaningful way to date. Operator: Our next question comes from Andrew Charles with TD Cowen. Andrew Charles: Brett, I appreciate all the context for the upcoming drivers. Two in particular, just in the current backdrop, the opportunities to accelerate investments in the near term and marketing, are there opportunities with the growing scale of the brand to really just create more brand awareness, now you've seen some nice gains last year as well as improving speed of service. And I would be very curious to know what the clearest action items are going to be for the incoming COO? Brett Schulman: Yes. Certainly, speed of service, we've noted in the past, we know it's an opportunity. We're mindful of striking the right balance where we're not rushing people through the line too fast when it's their first time experiencing Mediterranean food or their first time interacting with CAVA let alone eating Mediterranean food. But we see clear opportunities to continue to improve on that front. There will always be operational opportunities. We hold ourselves to a high standard. And we want to make sure that we're delivering CAVA hospitality to the level and degree that we aspire to across every restaurant and having that speed of service consistently across the country. So we think there's opportunities there. And then on the marketing front, as we gain scale in these markets, we'll continue to test more upper funnel activity that we have the ability to amortize and leverage it across a wider restaurant base. But from a new COO perspective, it's continuing to deepen and broaden out the people development pipeline. I noted we talked about the AGM role. That's in that spirit of not only helping give a stronger management complement across all shifts during the week across all 7 days, but also having more role-ready leaders in place. Again, being proactive, staying in front and thinking about what do we need to put in place for just -- not for today but for tomorrow to make sure that as we scale to 1,000 restaurants by 2032, that all those things are already in place at that time, and we will be working on other things as we go beyond that milestone goal. So the focus will be on the people development side as well as continuing to elevate our speed of service without having people feel to rush through that line. Operator: Our next question comes from Sharon Zackfia with William Blair. Sharon Zackfia: Brett, you mentioned younger guests kind of in the prepared comments, and I don't know if that was a broader statement of the industry or if you're seeing something in particular with younger cohorts. And I'm also interested in kind of what you're learning about how you can lean into loyalty just given kind of this more volatile consumer climate. Brett Schulman: Yes, Sharon, really, for us, we're a bit idiosyncratic in that our costs accelerated in the back half of last year when many industry comps were decelerating. So we're lapping tougher hurdles when most are having easier compares. So we don't want to overstate the challenges of the consumer, but you can look at the data. They're clearly out there, whether it's student loan repayment, consumer sentiment, just the inflationary pressures all around them, whether it's health care cost, housing costs, right? Gen Z unemployment twice the national average. When we look at the data, it's more that the younger cohort that 25 to 35 that Tricia noted in comments is that they don't have the steam that they had last year in the way that they were visiting or their frequency of visiting. It's not necessarily they're so challenged with us. It's just that they don't have the vigor or the frequency of occasions that they did last year. And that's why it's incumbent upon us to continue to double down on our experience and our value proposition and make sure we're communicating that effectively. We're not oblivious to the commentary about the $20 launch. Well, the reality is you can get a chicken fillet at CAVA with all the toppings included, three different spreads, greens and grains for $10.65 to our highest price of $12.95 in New York City. So that's a sub-$13 bowl in the most expensive market, not a $20 lunch. And that's an opportunity for us to continue to communicate that, but it's fresh food. It's not freeze on a fryer food or ultra processed food. And when you step back and you look at the 2-year comp of 20%, and you look at the almost 67% revenue growth on a 2-year basis, we continue to gain significant market share. And again, I know the Technomic data. It's very interesting. The industry has lost 7% in transactions since 2019. We've grown transactions in the mid-20s since 2019. We've taken half the price of industry peers food away from 34%, we've taken in aggregate, less than 17% in price. So we are focused on the long term. We say it's a marathon, not a sprint. And we want to continue and enhance our value proposition each and every year make our food more accessible to guests. Now on the loyalty front, we are very excited about what we've seen in our loyalty program. We noted we've seen an increase of 36% in members in our loyalty program. We added this new tier status. And we've seen the ability to really create greater value for our guests and influence behavior in a positive way for their visits and for the business and expose them to new items. So for example, on chicken shawarma, on our loyalty pool, people who have tried chicken shawarma are coming more frequently than users who have not tried it. So the ability to have that one-to-one line of communication drive that innovation, drive that newness, drive excitement, drive trial is a powerful first-party data tool that we look to continue to leverage in the coming quarters. Operator: Our next question comes from Jacob Aiken-Phillips with Melius Research. Jacob Aiken-Phillips: I just wanted to ask again on the honeymoon dynamic. So the last quarter, you described -- at least some of it as coming from maybe people driving further distance or just initial trial and new trade areas. But is that dynamic like something that lasted longer than the 3 months, 6 months or the initial stores that were affecting you last period doing better on a year-over-year basis? Just trying to understand the dynamic a bit better. Tricia Tolivar: Yes. So we are seeing the initial stores impacted are doing better on a year-over-year basis. And in fact, in looking at the restaurants in 2024 that have been opened for a period of time beyond 18 periods or 18 months, we're seeing a return to positive same-restaurant sales. So we don't believe this is reflective of a structural challenge. We don't find it concentrate in a certain geography or in a certain format or type of restaurant. We're continuing to monitor and we'll give you updates as we move forward. But likely given the performance of our 2025 vintage, we'll likely see a similar pattern in 2026. Operator: Our next question comes from John Ivankoe with JPMorgan. John Ivankoe: Thank you for opening the unit in Brickell. It's absolutely beautiful Brett and team, so thank you for that. So the question -- I'm going to make a question out of this. So this is a market where we know there's going to be a lot of demand growth, but the buildings haven't been built yet a lot of them. There's absolutely a lot of supply growth in the market and there's a lot of markets that are kind of like that around the country. New York City certainly is one, and I think there's a number of others as well where the supply growth is pretty obvious, just see walking down the street or the see on the app or to see on various promotions, what have you. So the question, Brett, we spent a lot of time talking on the demand side, but can you talk about kind of the effect of supply growth that you've kind of seen in various markets. Now I'm not asking you to is like, hey, are they going to last? It's just whether they've opened and maybe competed with you on the margin, and it's just something that we just kind of have to wait out as the market will inevitably settle? Brett Schulman: Yes, John, thanks for the Brickell comment. It's a beautiful restaurant, super phenomenal. Excited to have more open. We just opened Aventura in South Florida. It's interesting. I feel like it's less supply intense than in our younger earlier days. If you remember, kind of 2013 to 2016, there were a lot of fast casual concepts emerging and fighting for real estate. So it's more challenging. I mean, I think real estate is easier for us to get. And then from a competition standpoint, look, the restaurant industry, as I noted, has transactions down 7% since 2019, which means it's a share shift gain, which means you've got to be a better competitive alternative to the 3 or 4 or however many restaurants around you and be differentiated. And to us, that's our Mediterranean cuisine. This on-trend cuisine that is unique and that it meets the moment of a moderate consumers increasingly diverse pallet seeking bolder, more adventurous flavors while not wanting to sacrifice on health and wellness. And then delivering that, as I noted earlier, are doubling down on operational integrity with exceptional hospitality, not just average operations, exceptional hospitality, we have seen over our 15-year journey is a recipe for success. When we do that, and we do it consistently. These comps go up. It doesn't matter who opens next door to us. We continue to grow market share and that's what we're focused on. Operator: Our next question comes from Chris O'Cull with Stifel. Christopher O'Cull: Brett, I was wondering if the company has done any work to assess the value perception among non-CAVA users in more mature markets. I'm just wondering what the perception of the brand might be and what's keeping them from visiting the restaurants? Brett Schulman: Yes, our value perception is strong. We do biannual brand health surveys. Many of the analysts on this call have put out value surveys where, I don't want to play favorites or names, but there is a lot of good research that you all put out that is ranked us very strong in our value proposition, if not towards the top of the publicly traded industry set. So we see that corroborated, whether it's anecdotally, whether it's qualitative or quantitative. We see our value proposition continue to be recognized by consumers, whether they come to CAVA or whether they're not as aware of CAVA, whether it's our internal studies or some of these third-party org analyst studies. So I think it's also a reflection of the way we think about value. The relevance of our cuisine and measuring diet, the quality of the ingredients we're serving, the fresh food, fresh grilled proteins, fresh produce, not freeze to fryer or ultra process food, the convenience in which you can access it. And most importantly, at the end, I talk about the experience we deliver when you engage with the brand, and then you match that with the fact that over the long term, our long-term perspective and how we work every year to mitigate price less than 17% compared to 34% in industry aggregate average. We have underpriced inflation. We have underpriced peers that have enhanced that relative value proposition each and every year. Operator: Our next question comes from Sara Senatore with Bank of America. Sara Senatore: I wanted to ask about -- you mentioned technology and KDS, and you'll be rolling out more broadly. What are you seeing in terms of, again, perception -- consumer perception? Are you seeing increased frequency or speed of service that's translating into higher frequency. I know experience matters a lot, but sometimes it can be hard to detect throughput when demand slows. So just as I think about technology as a potential driver, any kind of reads on what that means for throughput and guest frequency? Brett Schulman: Yes, certainly, Sara, on the off-premise channels, whether it's delivery, third-party delivery or native delivery or digital order pickup, technology plays a key role. The integrations, the time our times on the third-party marketplace, how quickly we can get our food to consumers, making sure those integrations are aligned and then the team has the labor deployment and set up, so we can open our throttles. We manage, we build our own digital order platform. So we can control those throttles and we can open up those throttles as the team enhances and improves their productivity to deliver greater throughput and then the new kitchen display screen system really help improve order accuracy. We know it's our single biggest opportunity area for customer experience is making sure every digital order is accurate and that it has ample amount of food in the bowl. And that is something that the kitchen display screen system has really been a tool to help improve that and help ease of production for our operators and help deliver greater accuracy for guests. And we see that voice of the guest score improve, and we see comps follow that. Like that has been true in -- since our very earliest days, whether it's the digital order line or the in-restaurant line, when the customer experience scores improve, the comps follow. And so we want to continue to make sure we're putting our best foot forward in that light and then using technology to enhance the human experience, not replace it. You take some of that complexity out of our team members' mind share or equip them with the tools and capabilities to deliver that exceptional guest experience. Even another thing, just having that order status update notification and making sure the algorithm is updating our guests if we're running a little late or if we're running a few minutes early, so that they're walking in ideally when their goal is being put on the shelf or at the window and one of our pickup by card locations. Operator: Our next question comes from Danilo Gargiulo with Bernstein. Danilo Gargiulo: Brett, when you talk about hospitalities, you seem to suggest a broader opportunity than speed of service alone. So what do you think operations are falling short of your expectations relative to where you are going, not necessarily where you have been and where you are today? And what are some of the specific levers that you expect in the new CEO to deploy? And if I may, Tricia, you're expecting some of these investment in people to maybe translating into similar restaurant level margins compared to today? Or with sales leverage, should we still expect a growing restaurant level margin under the new operations? Brett Schulman: Yes. Thanks, Danilo. We have strong restaurant operations today. We have always been in a forward-looking posture, and we have aspirations to be thought of in an elite group of restaurant operators delivering exceptional service, not just average service, not just good service, exceptional service because it is like all my co-founders, sons of Greek immigrants, when you go to that part of the world, the hospitality, you feel the welcoming nature you feel. We want you to feel that every time you walk into every restaurant, no matter how big we get. And so that is our aspiration, and that is the work we are committed to every day to elevate to that level. And we have it in restaurants. We have opportunities in other restaurants. And I think in moments where there's cyclical pressures on the consumer, it matters more than ever to make sure that it's consistent across all restaurants and take good to great. And that is something that we think is just another opportunity to drive additional traffic and drive additional market share growth from the significant gains we've had in recent years. Tricia Tolivar: What that means from the restaurant level margin standpoint and how we're thinking about it. It's certainly a same-restaurant sales increase, restaurant-level margins will expand. But we're also very mindful of where we are in our journey and the investments that we think are necessary to put back in the business to make sure we're continuing to build a long-term durable brand that's going to consistently deliver on that guest experience and hospitality that Brett talked about. Brett Schulman: Yes, if we see opportunities to invest further in labor, we will. It's just a belief that -- a philosophical belief we have that has gotten us to where we are today that we are going to continue to look at opportunities to make sure that any restaurant level margin expansion is sustainable and durable over the long term. And in the short term, that might mean targeted investments, if that's what we think is the right thing to do for the business. Operator: Our next question comes from Dennis Geiger with UBS. Dennis Geiger: Just another one on the newer stores and the performance in year 2, if I could. Tricia, specifically, you gave some good color a couple of minutes ago, I think, and I want to make sure I heard it right. Just as far as you're still seeing those new stores enter the base, I assume as a negative, just like last quarter, but that 24 class, those stores open 18 months, they're flipping to positive. I assume not as strong as what you've seen in prior classes, but positive after 18 months. So just wanted to confirm that. And the question really is if -- as you look ahead, any better sense on what '26 may look like with this new store dynamic as you've now seen a couple of quarters of the Honeymoon dynamic and other levers maybe you can pull to sort of maintain that growth even after big year one opens? Tricia Tolivar: Yes, I appreciate it, Dan. So you heard it right, we're seeing the trends as you articulated them. And certainly, there are restaurants that perform above those expectations. So we're not -- but in general, yes, that is correct. And then in '26, we believe the '25 cohort of restaurants will perform similarly to what we saw with the '24 cohort in 2025. And things to do to try to make sure that we can open these restaurants as successfully as possible and capture as much of the honeymoon halo as we can is really taking our general managers and exposing them to high volumes as well and bringing them into other markets like New York to experience what these peaks are like, which is atypical and something that we hadn't experienced prior to this year, so that they're better able to manage the demand and then maintain more of those consumers as we go forward. Operator: Our next question comes from Jeffrey Bernstein with Barclays. Jeffrey Bernstein: Just looking at the most recent third quarter results. I'm just curious how much of the comp shortfall maybe versus your internal expectation heading into 3Q, do you attribute to the escalating macro headwinds versus perhaps some internal missteps or challenges and kind of thinking about as you look back, anything you would do differently if the challenging environment persists as we look into 2026? Tricia Tolivar: Yes, the macro environment is certainly what put pressure on the results in Q3. I wouldn't -- there isn't anything that's structural about the business or any missteps that are significant that we would have adjusted for which we have done differently. It's really about how we look at how we performed in light of the 2-year stack that we were facing. So when you're coming up on a comp in the quarter last year of 18%, coming out just under 2% is not an unreasonable expectation, given that tough compare and the macro environment that we're in. We talked about 2-year stack and how they accelerated. And the 3-year stack at the beginning of the year, we thought would be in the mid-30s and we're just under that at 34%. And in this type of environment, that was not unexpected. Brett Schulman: And again, Jeffrey, when we're in this heavy discounting environment, we're not going to get into that heavy discounting to combat any cyclical headwinds. That's why we talked about doubling down on exceptional operations and great guest experiences. That's where restaurant traffic starts. And that's always an opportunity for us and always will be, but it's incumbent upon us in these more challenging macro environments to double down on it because we're not fast food. We're not QSR. That's not our value proposition to our guests. Our value proposition as I spoke to before, the quality of our food, the relevance of the cuisine, the experience you get when you engage with us and you come into our dining rooms and you order on our digital channels and the accuracy we deliver. So we want to make sure we're doing everything we had in that spirit to deliver for our guests in this time when they're feeling pressures all around you. Operator: Your next question comes from Jon Tower with Citigroup. Jon Tower: Two, if I may. First, Brett, you've mentioned multiple times on the call, the brand's pricing versus CPI over time since 2019. So I guess my impression is that as we're looking at 2026, you guys are probably not going to do much by way of taking price for next year. And I'm just curious if that's the right assumption to make for the brand? And then my next question is just on the last year discussion and specifically the builds for 2026. To avoid maybe the same issue hitting the store base with respect to honeymoon. Are you guys doing anything specifically where you're opening the stores in 2026, such that 2027, you're not going to running into the same issues with Honeymoons or is that not even part of the discussion? Tricia Tolivar: So I'll start with price. So you're right, Jon, as we think about it, we've always been very thoughtful. Brett talked about this earlier on not passing a significant price on to our guests, so we don't plan to do that in 2026. So our expectation is our price increase will be very modest and less than what we did in 2025. And then as you're thinking about opening new restaurants in 2026, there's not a significant change contemplated and how we're opening them, just being thoughtful around what that means to the business and keep in mind our comp trends in Q1 of 2025 with a strong comp at 10.8%. That will factor in the cadence of comps next year. But when we look at our real estate strategy, just wanting to make sure that we're being balanced and thoughtful in how we're bringing new restaurants in, particularly in new markets and how we're pacing those openings to perhaps try to balance out that honeymoon phenomenon that we've been experiencing. But I'll tell you, we're seeing it all over. So it's not just in new markets. We're just -- the brand is resonating very well and driving strong demand that's bringing many more guests than we originally expected, which drives a stronger cash on cash return sooner, which is great for the business overall. Operator: Our next question comes from Brian Harbour with Morgan Stanley. Brian Harbour: The change to store margin guidance is that really just reflective of the sales environment? Or is there anything that's different about inflation, anything that we should factor in as we go to '26. And then I guess just also what's pressuring preopening expense? Tricia Tolivar: When we look at restaurant level margin, it really reflects the experience we had in Q3. And frankly, in the quarter itself, we have continued to have higher repair and maintenance expense than what we were anticipating. We have been talking to everyone and seeing that over the past year and had thought that it would come down a little bit. And so what the guidance reflects is the actual results in Q3 and a continuation of that from another operating expense perspective into Q4 as we identify opportunities to look at those repair and maintenance expenses and optimize them. So being more thoughtful around equipment and how do we make adjustments, but wanting to maintain the integrity in the physical spaces and making sure we're providing a great guest experience at the same time. There isn't anything significant around input costs or labor costs. It's more of that under operating expense line. And then when you talked about preopening costs, what we're planning with preopening is they were in the quarter itself. There were many more restaurants under construction than what was in the prior year. But overall, we are seeing an increase in preopening costs per restaurant driven by a number of factors, and it's largely due to us investing in a better opening experience. So when I mentioned earlier, taking general managers out of the market where the restaurant is going to open and bring them into higher volume markets, that has extra costs associated with it, which we think is important to make investment in, so the general managers are better prepared and there's a better guest experience overall. Operator: Our next question comes from Logan Reich with RBC Capital Markets. Logan Reich: Just on the Q4 comp, I recognize you guys gave the full year guide. It implies a relatively wide range on Q4. So just any sort of directional commentary you could provide on Q4 same-store sales outlook. Tricia Tolivar: Yes. So certainly, given the higher laps going up against the 21.2% same-restaurant sales in the prior year, coupled with the consumer headwinds, we wanted to take a very judicious approach in setting guidance, and it's been a bit choppy. And so what we're seeing today is a bit better than the midpoint of the range, but we wanted to be thoughtful and create a wide range because of the uncertainty that being faced with consumers today. And so how long will the shutdown continue? And what will that mean? And it's certainly a factor of one that's difficult to predict. Operator: Our next question comes from Nick Setyan with Mizuho. Nick Setyan: Historically, you've talked about the diversity of your COGS basket has been a little bit of a moat that allows you to under price inflation. What beef now in the equation, would you mind just updating us in terms of the composition of the COGS basket? And then two, just on the AGM investment, should we think about that as an incremental cost in labor in 2026? Any comment there would be helpful. Tricia Tolivar: Yes. So on the diversity of the cost basket, there isn't a material change in that mix overall. So 25% typically in proteins, 25% produce, 25% grocery and 25% everything else. So adding beef has not changed it materially in the overall cost from an input cost standpoint. And then when we're looking at AGMs, I appreciate you bringing that up. We've reimagined as the General Manager and training role and elevated it for those who are ready to an assistant general manager role. So it's not an incremental head count per se, but it is at a higher overall compensation rates. And so there'll be some modest impact to overall labor as we go into 2026. Operator: Our next question comes from Brian Vaccaro with Raymond James. Brian Vaccaro: Most of mine have been asked, but I thought I'd follow up on recent trends. And just given your footprint in the DMV market, I'm curious if you're seeing any outsized softness in that region during the government shutdown or more broadly to what degree you think that could be having an impact on your business? Brett Schulman: Yes, Brian, we did not initially see any impact. And in the most recent weeks as paycheck at going out to government workers, we have seen some softness creep in, but I wouldn't say it's acute or anything severe at this point. Operator: That appears to be our last question. I will now turn the conference back to Brett Schulman, Co-Founder and CEO, for any additional remarks. Brett Schulman: Thanks for joining us today. Before we wrap, I want to take a moment to share my gratitude for our entire team. Last month, I spent time in the field visiting our restaurants in the Midwest and Southeast. Seeing the energy of our teams, the pride they take in delivering great food and hospitality and the excitement of our guests is a powerful reminder of what fuels our success. This fall has been a period of continued growth, welcoming new guests, strengthening our operations and investing in the people who bring our mission to life every day. As we head to another holiday season, we're grateful for the dedication of our team members and the loyalty of our guests. We remain energized by the opportunities ahead. Thank you for your time and support. We look forward to connecting again in the new year. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: " Ido Schoenberg: " Mark Hirschhorn: " Stanislav Berenshteyn: " Wells Fargo Securities, LLC, Research Division Charles Rhyee: " TD Cowen, Research Division Jenny Cao: " Truist Securities, Inc., Research Division Jack Senft: " UBS Investment Bank, Research Division John Park: " Morgan Stanley, Research Division Operator: Hello, everyone, and welcome to Amwell's conference call to discuss their third fiscal quarter of 2025. Joining us on the call today are Amwell's Chairman and CEO, Dr. Ido Schoenberg; and Mark Hirschhorn, Amwell's CFO and Chief Operating Officer. Earlier today, a press release was distributed detailing their announcement. The earnings report is posted on the Amwell website at investors.amwell.com and is also available through normal news sources. This conference call is being webcast live on the IR page of the website, where a replay will be archived. Before they begin prepared remarks, I'd like to take this opportunity to remind you that during the call, we will make forward-looking statements regarding projected operating results and anticipated market opportunities. This forward-looking information is subject to the risks and uncertainties described in the filings with the SEC. Actual results or events may differ materially. Except as required by law, we undertake no obligation to update or revise these forward-looking statements. On this call, we'll refer to both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is provided in the earnings release. With that, I would like to turn the call over to Ido. Ido Schoenberg: Thank you, Operator, and good afternoon, everyone. For the third quarter, our results compared favorably to the guidance we provided. We showed steady progress in executing our plan, which is designed to achieve cash flow breakeven by the end of 2026 and to ultimately resume profitable growth. Our plan is based on 2 main work streams. First, focusing on our enterprise-grade, mature, and well-differentiated new platform to generate considerable value in our select market segments. Second, ensuring that all our operations are extremely efficient and effective. Both efforts rely heavily on the integration and adoption of rapidly evolving technologies, primarily enterprise-grade AI infrastructure. In recent years, we have invested significantly in recruiting exceptional talent and establishing strong governance, compliance, and operational frameworks. We have also committed substantial resources and continue to do so towards building ecosystem interoperability that enables seamless data exchange and deep integration with existing EHRs and clinical systems. These investments help position Amwell as a highly dependable, secure, and scalable technology-enabled care platform for our customers. We enable our customers to align our technology with measurable economic value while helping them address critical challenges such as clinician burnout, staffing shortages, and operational inefficiencies. Additionally, we position them to capitalize on emerging opportunities, including the integration of algorithm-based health care services, comprehensive care coordination, and new digital therapeutic solutions. These integrations may help our customers leverage predictive AI to reduce costly interventions and hospitalizations. Our efforts are beginning to pay off as reflected in our results, and we believe the impact will only accelerate going forward. For our first work stream in Q3, we began socializing our product focus areas through 2026 with our clients and prospects. We are committed to making the new Amwell platform the most effective and valuable hybrid care backbone we have ever offered them. Our mission is to help our customers reduce care costs, improve clinical outcomes, and offer the highest member engagement and satisfaction through exceptional user experience. We strive to achieve this through the following focus areas: First, we are moving AI into the core workflow layer. We're responsibly implementing enterprise-grade AI and other technologies to transform patient intake, personalized dialogue, and navigation, as well as clinical program matching and onboarding. Our efforts benefit from almost 2 decades of telehealth experience and access to an incredible data and knowledge repository driven by many millions of digital-first care encounters. Second, we are enhancing and simplifying the way we work with our own and third-party partner clinical programs. This enhanced program integration is expected to help offer our customers even more options across the care continuum while adding more value to our clinical program partners. Also, clients will be able to seamlessly integrate clinical programs they've already committed to into their Amwell platform with unprecedented ease. As noted on our earlier calls, these third-party partners represent an important high-margin flywheel growth opportunity for Amwell. Our own clinical programs are likely to be the first to benefit from these changes and further improve our offering across urgent care, virtual primary care, comprehensive behavioral health, nutrition, lactation, and more. Third, we are investing in and will remain heavily committed to our data and analytics infrastructure. We plan to offer our customers even better ways to measure and improve financial and clinical outcomes across all programs while offering patients an even more personalized, simple, and relevant journey. As payers, employers, and health systems look to consolidate their technology-enabled care strategy, we offer a unique and reliable solution. It allows them to realize their financial, clinical, and member engagement goals while maintaining full flexibility to dynamically choose and replace the clinical programs that work best for them in the simplest, most scalable, and reproducible way. Our second work stream is centered around relentless focus and commitment to efficiency and quality. We are further improving our platform to make it even easier to deploy, maintain, and support. Self-management and automation tools for our customers are a good example of this commitment. These tools empower clients to do more faster while simultaneously reducing our own cost of deployment. As we carefully define what we focus on, we are decisively divesting noncore assets. Earlier this year, we announced the sale of Amwell Psychiatric Care, or APC, and are currently pursuing other actions to divert access resources away from non-core assets. It is important to note that we plan to continue to fully support and maintain legacy assets that still provide value to our customers. These customers have expressed comfort from the stability and reliability of our trusted legacy solutions. We hope to see them gradually migrate to our core offering over time when they are ready. In parallel, we systematically analyzed our own efficiency across all our operations. We were able to find opportunities to improve efficiency, including with widespread AI adoption, while rightsizing headcount across the board. These reductions in force were made possible through various interventions, including careful reallocation of talent across the company. Now I'll take a step back to look broadly at the macro environment. In 2025, we continue to see clear signs that the market is shifting in our favor. Consumer demand for digital health is accelerating. Mental health telehealth utilization reached 27.8% in July, according to the Epic Research data tracker. And 79% of Gen Z now use health technology monthly, according to PwC 2025 Healthcare Consumer Insight survey. At the same time, digital clinical programs are demonstrating real results. Research shows digital disease management can reduce 30-day readmission rates by 50%. This effectiveness is driving significant investment. AI start-ups, many of which could be considered clinical program themselves, capture 60% of all digital health funding in Q1, according to the AHA Center for Health Innovation. However, payers, employers, and health systems are struggling with fragmentation. Employers now manage an average of 4 to 9 point solutions, yet only 22% trust these vendors to act in their best interest, according to Evernorth Insights. This fragmentation carries real cost. For example, inefficient data exchange costs healthcare organizations up to $20 million annually. As a result, integration has become a strategic imperative. 62% of health plan leaders identify integrated solutions as a top 2025 priority according to HealthEdge's annual survey. Organizations need help managing technology, engagement, reporting, and the commercial burden of multiple vendors, and that's exactly the gap we are positioned to fill. In that setting, the Amwell platform promises much-needed relief by maintaining future-ready flexibility with the efficiency, effectiveness, and peace of mind of offering one relationship, one user experience, and one data and reporting infrastructure across a dynamic and open-ended array of clinical programs and vendors. Our unique business model never forces our clients to only use Amwell clinical programs. This aligns our interests and positions us well as their long-term partner. While many of our competitors feature their brands to members, we enable our customers to use their own white-labeled experience. Their Amwell platform inside allows them to offer a unified customer-branded gateway to all their covered programs. Finally, and importantly, our ability to supplement automated programs with trusted in-network certified providers at scale enables and accelerates the safe and effective adoption of these new AI-driven solutions. Our special architecture is helpful in making customer acquisition costs more effective and in improving the customers' overall brand value and stickiness by associating it with a wide array of helpful services and exceptional platform experience. Our ability to help customers obtain a clear view of whole-person and cohort outcomes and offer them tools to continuously improve results by switching programs and matching them with the right cohorts is highly desirable and appreciated. In our conversations in the market, our strategy resonates. As we look forward, we fully expect our competitive advantages to become increasingly visible and compelling as we continue to roll out our new Amwell platform. We believe that our long journey is in many ways only beginning, and we are excited about what the future brings to our loyal and sophisticated supporters, our customers, and our company. With that, I would like to turn the call over to Mark for a review of our financials and our guidance. Mark? Mark Hirschhorn: Thanks, Ido, and good afternoon to everyone on the call. On today's call, I will walk through a few key operating metrics and financial results from the third quarter and then provide an update to our guidance for the remainder of this year. In the third quarter, we delivered results ahead of expectations for both revenue and adjusted EBITDA, reflecting stronger subscription retention, increased visit volume in specialty care and virtual primary care, and meaningful cost efficiencies driven by the successful execution of our restructuring. Our progress this quarter reinforces that the actions we began earlier this year are translating into durable financial improvement and accelerating operating leverage. Today, I will walk you through our quarterly performance, highlight the financial impact of these strategic actions and provide an updated view on our guidance for the balance of 2025. Total revenue was $56.3 million, which represents an 8% decrease year-over-year and includes the step-down in contribution from Leidos and the divestiture of APC. Normalizing for the sale of APC, Q3 revenue would have increased 1.3%. Subscription revenue of $30.9 million increased 18% year-over-year and represented 55% of total revenue compared to 43% of total revenue a year ago. Total visit volume of approximately 1.1 million visits in the third quarter was down 21% from a year ago, although in line with our expectations. Amwell Medical Group, or AMG visit revenue was 23% lower than last year at $21.2 million. Normalizing for the sale of APC, however, visits were down 3.5% from a year ago. Average revenue per visit was $71, which is 14% lower this quarter compared to last year's Q3. But when normalizing for the sale of APC, average revenue per visit was 3.5% higher, driven by a continued mix shift to higher-priced virtual primary care and specialty care visits. GAAP gross margin expanded to 52% compared to 37% a year ago as a result of greater software and services revenue generating stronger margin contribution than last year's comparable quarter revenue mix and divestiture of APC. Our operating expenses totaled $58.9 million in the quarter, a decrease of 16% compared to last year, comprised of a 6% reduction in R&D, a 46% decrease in sales and marketing and a 14% decrease in G&A expenses. We remain focused on optimizing our resources, and we are clearly moving in the right direction and getting closer to our foundational cost basis. Adjusted EBITDA was a loss of $12.7 million for the quarter, which compared favorably to a loss of $31 million a year ago, evidence of our acute focus and execution of our cost containment initiatives. In terms of cash and liquidity, we reported a cash burn of approximately $18 million in Q3 and ended the quarter with approximately $201 million in cash and marketable securities with 0 debt. Finally, to wrap up my comments today, I'll share our revised guidance outlook. With just 2 months remaining in the year, we now expect our full year revenue to be between $245 million and $248 million versus the prior range of $245 million to $250 million. Adjusted EBITDA in the range of a negative $45 million to negative $42 million versus the prior range of negative $50 million to negative $45 million. Our range for AMG visits remained steady between 1.3 million and 1.35 million visits. Our full year guidance assumes the reduction of R&D expenses by more than 10% this year versus 2024 as we streamlined and completed the bulk of our software configuration to our existing build and integration commitments. At the same time, we continue to expect sales and marketing costs to decline more than 25% year-over-year and G&A expense to decline at least 20% for the year as we continue to organize the company around a new lower cost structure. We now project Q4 revenue in the range of $51 million to $54 million and adjusted EBITDA between negative $15 million to negative $12 million. We have made meaningful progress rightsizing the cost structure while diligently working to position Amwell for longer-term success. We have quite a bit of work left to do, but we remain committed to our goal of generating positive cash flow from operations during 2026. I want to thank our entire team for their commitment and passion to our overarching mission of increasing access to affordable, high-quality health care. Thank you all for your time and attention. I'd now like to turn the call back to Ido for his closing remarks. Ido? Ido Schoenberg: Thank you, Mark. We're seeing a remarkable transformation in our market. As AI health care solutions proliferate both within and beyond Amwell, they're delivering significantly better patient outcomes with greater accessibility and affordability. In this evolving landscape, Amwell's role as an integrated backbone has never been more vital. Our unique ability to seamlessly blend intelligent automation with certified trusted clinicians provide a safe, effective pathway to superior care outcomes today and tomorrow. Our clients value our proven track record of delivering measurable economic value while ensuring compliance and providing essential support to overburdened health care providers. Through enterprise-grade workflow automation, we're enhancing both access and operational efficiency. We are proud of our mission and firmly believe it's more relevant now than ever before. With that, I'll open the call for questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Stan Berenshteyn of Wells Fargo Securities. Stanislav Berenshteyn: A couple for me. First, I actually wanted to go back to the prior quarter where you had announced a Florida Blues plan win. I was curious if you can give us some color regarding how you won that? Was that a competitive takeaway? And are you seeing any similar opportunities for you going forward? Ido Schoenberg: Stan, yes, we are very pleased with this important win. It was a competitive situation, and we are deinstalling a major competitor in this setting. The drivers for this really demonstrate everything I spoke about in the prepared remarks. I believe that Florida Blue, like many other payers understood that there is enormous fragmentation, enormous opportunity in AI programs, but they need to create one infrastructure under their brand that will allow for one efficient consumer engagement solution that will be able to drive care with their own choices of clinical program, including maybe different choices for different ASOs or different cohorts and one report and one infrastructure. They, like many other people, existing customers and people that we talk with during our dialogue with the pipeline, really talk about vendor fatigue and complexity. There is a tami of amazing programs, some are better than the others. Many of them have enormous opportunity, but many of them are risky, and there is real need for one technology-enabled care infrastructure, which is an integrator and a distributor, if you will, for members. So all those important value points based on our dialogue with this very important customer, in my opinion, we're leading to this win and are indicative of a future demand that is likely to grow as more AI-driven program proliferate. Stanislav Berenshteyn: And then a follow-up for me here. Regarding the comments you made in the prepared remarks around potential further divestiture of noncore assets. Can you give us any insight as to what those assets might be? And are you in any active discussions here? Or is this more of a theoretical process? Ido Schoenberg: So this is very practical. Let's start there. The key conclusion is that the opportunity we spoke about with Florida Blue and many others is very, very exciting. And because of that, we decided to focus all our efforts around it because we believe that's the best ROI for Amwell and the best way we can create value for our customers. We do have a long list of legacy products that do the job but do the job well. Examples are automated programs for hospitals or inpatient solutions and so on and so forth. These are good products that are secure and reliable and dependable, and we plan to continue and use them, but we are going to spend less, significantly less in growing these market segments in comparison to this very clear enormous opportunity that I shared earlier. And that's really part of our strategy that we are implementing as we speak. Operator: Our next question comes from the line of Charles Rhyee of TD Cowen. Charles Rhyee: You talked about AI and implementing that across the enterprise and other technology to sort of inform patient intake, navigation, et cetera. Can you talk a little bit about how that can be monetized? Is that something that you are charging extra for? What is sort of the model as we think about that? And maybe, Mark, I know it's still probably a little early. How should we think about maybe any kind of guardrails to think about when looking out to '26 at all, at least from a top line perspective? Ido Schoenberg: Absolutely, Charles. So suffice to say that AI is influencing everything we do and everything that happens in our ecosystem. It's very, very dramatic. Let's start with the product, and let's start with third-party partners. When you think about someone like Sword, for example, their ability to predict with AI likelihood of someone getting surgery very soon is incredibly important. Our ability to route this patient to Sword and then document these savings and report it back to the likes of Elevance and others is incredibly, incredibly valuable. The same is true for other partners like HelloHeart that is able to use predictive modeling to manage medication adherence better, and there are many other such examples. So first and foremost, AI is influencing both Amwell and non-Amwell clinical programs themselves. In addition to that, AI is allowing us to create a dramatically different experience for consumers. It can be highly personalized. You can get immediate attention as a person and have a very simple, easy, attentive, personalized navigation to programs that are likely to be helpful for you. So that's another area where AI has enormous value. The monetization of such value, both things actually really increase ROI for our customers and increase traction. So when a great experience is leading to a virtual primary care experience at over 30 days saving $500 for our customers, that's very good for Amwell. That's very good for our customers as well. In addition to that, using of AI for data analytics so you can push information about outcomes in a very coherent way across different programs for a whole person and whole cohort is allowing our customers to choose the right programs and refine them over time. It also allows us to further personalize the experience for consumers and getting more use -- even more use and more higher NPS over the next. So all those examples in program essentially increase the value and the traction of our platform. We don't necessarily charge more for our platform directly in order to do that, although we may be able to do that in the future. But much more importantly, as we share the value of this traction in this traffic, each time we refer someone to Sword, for example, we get some rev share from this company, which is good for us and much better than the alternative customer acquisition cost. So overall, all those investments are really creating more value for our own platform. In addition to that, like any other company, we brought some wonderful talent from big tech, people like Amazon and others. And we are looking at every part of our operation, whether it's core generation, QA, product management, sales, deployment, support and so on and so forth. And like many others, we are investing much in order to implement those solutions in order to be better, more effective, more efficient. And that work is ongoing and has more and more impact. I would just suggest that if you need to quantify the most important financial impact, and our relevance going forward, I would suggest that our ability to tie together hybrid solution between certified humans like our national network and other solutions together with AI-driven programs that as a result, create much better financial and clinical outcomes with much lower cost and much higher engagement is the heart of the influence of AI on our financial performance. Charles Rhyee: But I guess it sounds like then maybe, Mark, in terms of how should we think about next year? And also if we're not necessarily charging more for these innovations and obviously demonstrating more ROI for customers, how should we think about margins at least? Is the current rate, I think it was 52% here in the quarter. Is that sort of the right level we should be thinking about next year? Or maybe any kind of thoughts there would be helpful. Mark Hirschhorn: Yes. Charles, I don't believe the introduction of the AI features and the attributes that we're looking to implement throughout the year are going to have any meaningful impact on our margins. What's going to lead to the margin probably variation from '25 to '26 will be exactly what we saw in '25, which was the greater ability to bring more software revenues into the top line. Clearly, we had significant to the tune of tens of millions of dollars of implementation revenues generating very high margins. They impacted the margin profile tremendously. And that's why we're exiting at these stronger margins compared to '24. '26, I believe, will be consistent with the '25 margin profile. Charles Rhyee: And maybe one last one, if I could. You talked about sort of divesting sort of noncore assets. Obviously, APC was an example. Is there a lot of other assets still that you would consider in that noncore bucket? And is there a sense for timing? Is this something that we'd like to do very soon? Or is this when you can get something a good value for it? Mark Hirschhorn: It's more the latter, Charles. We're not in the market with either of these, what I would suggest are a couple of defined assets that can be bifurcated from the rest of the business without losing any focus, without challenging any of the clients right now with removing some of these. These are distinct assets that have a certain profile of clients that we could, in fact, cordon off, we could run them separately. But I think throughout '26, we will try to, again, narrow our focus in those areas that Ido shared in his prepared remarks. Operator: Our next question comes from the line of Jailendra Singh of Truist Securities. Jenny Cao: This is Jenny on for Jailendra. Just had a question around macro with all the macro noise, tariffs and economic uncertainty. Have you seen any impact on your sales pipeline as health systems continue to evaluate their IT budgets? Just curious how that conversation has been going in terms of the last couple of months? And related to that, can you talk about your direct tariff exposure? Ido Schoenberg: Jenny, well, essentially, what we see in the market is that our solution is serving very important pain points that many of the customers using the new ones see as obligatory in the sense that if you think about it for a payer, the ability to have reliable, effective solution around hybrid care and technology-enabled care is a tool that is demanded by the sponsors, by employers and others and generate enormous savings. Implementing effective AI-driven care programs is not a question of if, it's really a question of how. You must do it, and that's very clear for our customers. That's very dangerous. It's very confusing. It's error-prone. We offer our customers an ability to create less noise by having one platform that is embedded in their infrastructure and much less vendor fatigue by allowing us to do the heavy lifting of connecting to more and more solutions and making it still part of one experience and one report. So when we talk to them, that's not a line item they are likely to pass upon even if pressed. As it relates to health systems, we definitely believe that when we look at things like workflow automation, inpatient solutions, hardware solutions, things of that nature, there's definitely some resistance right now and some caution because of the economical impact. And that's one of the reasons why we are moving away resources from promoting such solutions into our core offering. At the same time, when you look at delivery network that are implementing value-based care, when you look at their competition for patients, their need to add, for example, behavioral health to their core offering, things of that nature, their ability to expand their reach beyond catchment areas, all these things directly influence revenues, directly influence their livelihood and are considered as essential. And therefore, we see that we still have an offering that resonates and is relevant right now. As it relates to tariffs, very minimal impact. We have a tiny business line that still has some hardware outside the United States. And that, of course, is impacted, but it has a negligible impact on our performance. We are proudly creating our software as a U.S. firm and therefore -- and our businesses in the U.S. as well. So we don't see any meaningful impact -- direct impact as it relates to tariffs. Of course, it may influence the market and the macro like everyone else, but it's not Amwell specific. Operator: Our next question comes from the line of Kevin Caliendo of UBS. Jack Senft: This is Jack Senft on for Kevin. I wanted to go back to the comments on diverting resources away from the noncore assets. So just to clarify, this is something that's not embedded in guidance this year, correct? And then maybe as a second part to that, is this -- if it's not, is this something that could move up your time line on being cash flow breakeven next year? Or is this something that could even meaningfully move up cash flow expectations? If you can just comment on kind of what your expectations are there, that would be great. Mark Hirschhorn: Yes. This is not included in any of the guidance that you've seen throughout 2025 or the new guidance we provided for the final quarter this year. The impact that it would likely have would not be substantial to the degree that it would change our perspective on cash flow breakeven from operations in the end of 2026. Jack Senft: And then maybe just a quick follow-up. I know your sales and marketing expense, it took a nice step down sequentially this quarter. I know you're still targeting the declines of at least 25% plus this year. But maybe as we look at each like kind of line item in the operating expenses here, are these kind of good run rates to think about going forward? Or is there still additional leverage that you can pull next year? I think you touched on it a little bit briefly, but if you can just talk a little bit more about it, that would be great. Mark Hirschhorn: Yes, sure. As you pointed out, right, we had we really optimized the spend and reduced significantly the sales and marketing costs quarter-over-quarter, but obviously, compared to last year, that's material. I think there's still some meaningful opportunity to take out some costs in 2 other areas, probably G&A. We -- another significant area, probably the most from an absolute dollar perspective was in our costs and the delivery functioning. That's where we're likely going to be benefiting from the implementation of AI tools, both clinical operations, clinical delivery. We'll be able to scale the growth at a lower cost. And I think that will be visible throughout 2026 and beyond. Operator: Our next question comes from the line of John Park of Morgan Stanley. John Park: I know you guys talked about the cash flow breakeven target in '26. And also given the noncore divestitures that are conversations that are going on, if you had to prioritize or rank the factors going into this -- going into that target, factors such as customer renewals, perhaps price increases, service mix, maybe some other factors that I'm not considering right now, how would you rank those? Mark Hirschhorn: Are you asking how we would rank those in consideration of our target for cash flow breakeven next year? Or how do we rank them purely from a top to bottom priority? John Park: Yes. Like how would you prioritize those things? Obviously, the divesting noncore assets is probably going to get you a decent chunk there, but just wondering how -- any other factors to consider to reach that target? Mark Hirschhorn: Yes. The divestiture of those noncore assets will certainly help to focus the company on our core initiatives and would obviously provide some additional dry powder for the balance sheet on top of our $200 million that we just ended the quarter with. And again, we have no debt. So that gives us a little bit more leverage. But I think we primarily have to focus on client retention, ensuring that our platform is delivering and our teams are handling the requests, the growth, the other opportunities for ROI that our clients are demanding. So I'd probably tell you retention is #1. And then, of course, some of the growth initiatives on the product side would then likely be ranked as the #2 priority John Park: I know you mentioned Sword as kind of a way to implement more partners. Is there any areas or topics that you would not want to partner where you would want to just own outright versus integrate with third party? Ido Schoenberg: So our service to our customers is the ability to help them under the brand, create one customer acquisition cost gateway connected to programs of their choosing. The fact that we come out of the box with a very long list of solutions across the full continuum doesn't hurt. But even more exciting is the fact that we can very easily add anything they want to or their clients want to implement. So as long as our customers believe that the solution is logistic, it's secure, it's compliant with different regulations, things of that nature, we will gladly implement it as part of their solution so they can benefit and monitor the value of such implementation. Operator: I'm showing no further questions at this time. I would now like to turn it back to Ido for closing remarks. Ido Schoenberg: Thank you, everyone, for joining. We really appreciate your time. It's interesting to see how relevant Amwell is in a time of great change, and it's exciting to see how this will grow even more as we go forward. Thank you again, and have a good evening. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Thank you.
Operator: Good day, everyone, and welcome to the Finance of America Third Quarter 2025 Earnings Call. At this time, I would like to hand the call over to Mr. Michael Fant. Please go ahead, sir. Michael Fant: Thank you, and good afternoon, everyone, and welcome to Finance of America's Third Quarter 2025 Earnings Call. With me today are Graham Fleming, Chief Executive Officer; Kristen Sieffert, President; and Matt Engel, Chief Financial Officer. As a reminder, this call is being recorded, and you can find the earnings release on our Investor Relations website at ir.financeofamericacompanies.com. Also, I would like to remind everyone that comments on this conference call may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding the company's expected operating and financial performance for future periods. These statements are based on the company's current expectations and are subject to the safe harbor statement for forward-looking statements that you will find in today's earnings release. Actual results for future periods may differ materially from those expressed or implied by these forward-looking statements due to a number of risks or other factors, including those that are described in the Risk Factors section of Finance of America's amended annual report on Form 10-K for the year ended December 31, 2024, filed with the SEC on May 20, 2025. Such risk factors may be amended and updated in our subsequent filings with the SEC. We are not undertaking any commitment to update these statements if conditions change. Please note, today, we will be discussing interim period financials for our continuing operations, which are unaudited. In addition, we will refer to certain non-GAAP financial measures on this call. You can find reconciliations of non-GAAP to GAAP financial measures to the extent available without unreasonable efforts in our earnings press release on the Investor Relations page of our website. Now I'll turn the call over to our Chief Executive Officer, Graham Fleming. Graham? Graham Fleming: Thank you, Michael, and good afternoon, everyone. The third quarter of 2025 marked a period of strategic execution and strong performance for Finance of America. In a dynamic market environment, we remain focused on operational excellence, proactive balance sheet management and long-term growth. Year-to-date, we have reported GAAP net income of $131 million or $5.78 per basic share, reflecting the benefit of lower interest rates and tighter spreads, partially offset by softer home price appreciation projections in the third quarter. On an adjusted basis, we generated adjusted net income of $33 million for the quarter or $1.33 per share, representing a significant sequential improvement and more than double the level from a year ago. The increase was driven by improving revenues across our business with increased margins on HomeSafe and HECM products, stronger origination fee income and higher capital markets revenue as a result of the over $3 billion of notes issued in our securitizations backed by our proprietary loans during the quarter. Compared to the first 9 months of 2024, we have seen funded volumes increase by over 28% and adjusted net income grow by more than 5x from $9 million in 2024 to $60 million in the first 9 months of 2025. This translates to $2.33 of adjusted earnings per share, a major step toward our full year guidance. Turning to adjusted EBITDA. The company generated $114 million for the first 9 months of 2025, a 171% improvement compared to the same period a year ago. During the quarter, we completed a series of transactions to enhance liquidity and balance sheet flexibility. We repaid $85 million of higher cost working capital facilities and entered into an agreement to repurchase the entirety of Blackstone's equity stake in FOA. We also closed our largest proprietary securitization in company history in September, a nearly $2 billion issuance. As of September 30, these actions left the company with $110 million in cash and cash equivalents compared to $46 million as of June 30. This increase in cash provides FOA with enough liquidity to satisfy the $53 million corporate bond payments due later this month. In addition to our strong results, in October, we announced a strategic partnership with Better.com, expanding our product offerings and enhancing our technology backbone to better serve our demographic, which Kristen will touch on in more detail. Over the last several years, we've continued to invest in digital innovation, AI and data analytics, strengthening the foundation of our business. While still very early in the adoption of AI technology, we fully expect these investments to improve the customer experience, enhance the ROI on our marketing spend and increase the productivity of the organization, driving improved operating leverage. Kristen will share more on the progress we've made in these areas and the impact across our platform. Kristen? Kristen Sieffert: Thanks, Graham, and good afternoon, everyone. The third quarter represented a disciplined period of execution across Finance of America. We delivered solid origination performance, advanced our technology transformation and continued to strengthen the core fundamentals that position FOA for sustainable, profitable growth into 2026 and beyond. Origination performance remained robust with funded volume reaching $603 million and submission volume reaching $887 million for the quarter compared to $764 million in the same period last year. By the end of October, for the year 2025, we funded $1.97 billion in reverse mortgages, surpassing our entire 2024 production of $1.92 billion, and October submissions totaled $336 million, the highest month in 3 years. Beyond headline volume, the team continues to make substantial progress in transforming the business model. We're embedding AI, digital automation and advanced data analytics across our wholesale and retail channels, driving measurable gains in efficiency and conversion. We're already seeing tangible results from our digital-first strategy. Over 20% of customers who engaged with our new digital prequalification completed the process without loan officer intervention. The tool, which includes a soft credit pull, delivers a 3-minute prequalification experience, setting a new benchmark for speed and customer engagement in the reverse mortgage industry. This will translate into greater efficiency per loan officer, and we saw this in October's numbers as our loan officers were able to service 25% more opportunities and generated a 32% increase in monthly submission volume over the year-to-date averages. Our continued investment in and attention to the top of the funnel is driving stronger digital engagement and setting the foundation for efficient volume growth in 2026. Unique web leads increased 16% quarter-over-quarter. Customer e-mail retention increased 36% from the time of the AAG platform acquisition and leads generated through e-mail nurture from our database increased 206% quarter-over-quarter. In the coming months, we're enhancing this digital ecosystem further with SMS engagement tools for sales teams, AI-powered call agents to provide 24/7 borrower support and AI-powered wholesale tools to improve our partner experience. These initiatives are expected to increase conversion at critical funnel points, expanding our operating leverage and the scalability of our model. We are also continuing to advance our diversification strategy through a strategic partnership with Better.com that broadens our impact into the total addressable market. These traditional home equity products enable us to serve approximately 30% more of the potential borrowers already engaging with our brand who need higher loan-to-value solutions than our current reverse suite provides. At FOA, we're not just adapting to the future of home equity, we're defining it. Our investments in digital automation, data infrastructure and AI are structurally enhancing unit economics, driving margin expansion and strengthening our long-term earnings power. As home equity continues to move from the most underused retirement asset to a mainstream solution for the modern retiree, FOA is positioned at the center of this transformation, committed to unlocking opportunities for millions of Americans to realize the full potential of their retirement. With that, I'll turn it over to Matt to review the financials. Matt? Matthew Engel: Thank you, Kristen, and good afternoon, everyone. The third quarter reflected strategic execution and strong performance for Finance of America, highlighting both the consistent progress of our operating performance and our ability to take advantage of opportunities as they arise. On a GAAP basis, the company reported a net loss of $29 million for the quarter as lower interest rates and tighter spreads were more than offset by softer home price appreciation projections impacting the noncash fair value of our residuals. Year-to-date, the company is still significantly positive, reporting $131 million of pretax income for the first 9 months of 2025. Adjusted net income for the quarter totaled $33 million or $1.33 per share, a 125% increase from the prior quarter and more than double the level from the same period last year. This improvement was driven by higher origination margins and increased capital markets activity. For the first 9 months of 2025, we have funded approximately $1.8 billion in originations compared with $1.4 billion during the same period last year, an increase of 28% year-over-year. Adjusted net income totaled $60 million or $2.33 per share, up meaningfully from $9 million or $0.38 per share in the same period of 2024. This improvement reflects stronger margins, increased capital markets activity and continued expense discipline across our platform. Excluding fair value changes from market and model assumptions, Q3 revenues totaled $103 million, bringing year-to-date total revenue to $263 million, an increase of 22% year-over-year from $215 million in the first 9 months of 2024. During the quarter, we strengthened our liquidity through the issuance of $40 million of 0% convertible notes as well as the monetization of residual assets, completing over $3 billion in securitizations, including a nearly $2 billion securitization in September, the largest in the company's history. Additionally, we paid down $125 million of working capital and other financing facilities with $60 million remaining to be redrawn for future use. Despite these paydowns, cash levels increased from $46 million as of June 30 to $110 million as of September 30, allowing us to set aside funds for the scheduled $53 million corporate debt paydown later this month. As announced in August, we entered into an agreement to repurchase all existing shares owned by Blackstone. In accordance with GAAP accounting rules, this agreement is seen as an obligation and therefore, accounted for as a liability and a reduction to equity as of the date of the announcement. Our September 30 balance sheet reflects this liability and reduction to equity. Turning to guidance. We are reaffirming our full year 2025 adjusted EPS target of $2.60 to $3 and anticipate tracking toward the low end of our previously stated volume range of $2.4 billion to $2.7 billion. Looking ahead to 2026, we expect volume growth of 20% to 25% year-over-year, supporting a 2026 adjusted earnings per share guidance of $4.25 to $4.75 per share, which is up from $2.60 to $3 in 2025. With that, I'll turn it back to Graham for closing remarks. Graham Fleming: Thank you, Matt. As we close the third quarter, I want to take a moment to reflect on the progress we've made. In just over a year since our transformation, we have achieved consistent profitability and expanded our leadership in reverse lending while delevering and strengthening our balance sheet. As Kristen mentioned, we're seeing strong momentum at the top of the funnel with record lead generation, higher digital engagement and continued efficiency gains, all of which give us confidence to achieve a 60% year-over-year increase in 2026 adjusted EPS guidance. These accomplishments demonstrate our progress in building a stronger, more efficient and more diversified Finance of America. Our continued investment in modernization, digital innovation and AI is enhancing productivity, expanding operating leverage and positioning us to scale efficiently as demand for home equity solutions grows. We believe we are well positioned to deliver sustained volume growth of roughly 20% annually over the coming years as we build the most trusted and technologically advanced platform for retirement-focused home equity solutions in America. We are confident in our direction, encouraged by our results and excited about the opportunities ahead. As we look to 2026, we remain committed to driving sustainable growth, enhancing shareholder value and helping more Americans discover there is a better way with FOA. And with that, we'll open the call for questions. Operator: [Operator Instructions] We'll take the first question today from Doug Harter, UBS. Douglas Harter: Just on the buyback, I guess, has that been completed yet? Or what is the updated time frame on that completion? Matthew Engel: It has not been completed yet, Doug. It's really -- we're on track to complete it. Most likely that will begin later this month and into December perhaps. Douglas Harter: And can you remind me the cash total of that, just as we think about kind of this, the uses of your current cash position? Matthew Engel: It's about $80 million. Douglas Harter: Okay. And then how do you think about what is the right level of cash to hold? Like how much of that capacity do you have to redraw do you think you need to do in the coming months? Matthew Engel: So if you kind of piece it together, Doug, I think we ended the quarter with $110 million. We indicated we had paid down during the quarter $125 million of working capital facilities, right, which was $85 million of the kind of corporate general facilities and then other kind of warehouse debt. So of that $125 million, $60 million of it is available really to be redrawn as necessary. So you can really kind of add that to the $110 million we had on hand at the end of September to give you the kind of the adjusted cash capacity we have heading into the fourth quarter. Douglas Harter: Got it. And then I guess, how should we -- obviously, a strong securitization quarter, which I imagine was a big part of the cash generation. How should we think about your cadence in the coming months, quarters of securitization? And just any update on how that market is functioning right now? Matthew Engel: Yes. I think generally, our cadence has been to do kind of one large securitization every quarter. We did accelerate. We probably accelerated, pulled one that we had planned for Q4 into Q3. But that said, we do have a smaller securitization we expect to complete this month and it remains to be seen exactly what that timing looks like. But I do think the Q3 activity was larger than what you'd normally expect to see on a go-forward basis. The market has been performing very well. Spreads have been tight. Demand has been good. One thing we've seen, especially as we started doing some larger deals. Remember, we did a $1 billion deal in July, which at the time was our largest deal ever, followed that up with a $2 billion deal in September, doubled that. Both were very well received. And that when you start talking bigger numbers, you just get a different class of investor, multiple new investors coming in. So we saw a very good reception for our bonds in those deals. Operator: The next question is from Leon Cooperman from Omega Advisors. Leon Cooperman: There are lots of different measures of earnings. How much cash do you generate in a typical year? In other words, how much cash would you generate in a 12-month period on average? Graham Fleming: So Leon, I'll answer that one. So in any given year, when you look at our PTI, it may -- because we create residuals in MSR, I would say within 24 to 36 months after our P&L, that number all turns green. So if we post $100 million or $120 million of PTI for this year, you would expect over the course of 3 years that, that would all become cash? Leon Cooperman: Okay. But I want to take the $100 million divide by 3, it's a typical year. Graham Fleming: Well, we do have currently on our balance sheet, we still have roughly $300 million of residuals and retained securities, right, that over the coming years, we'll continue to monetize those residuals, and they'll continue to turn to cash. And then our new residuals -- we'll create new residuals and new MSR on a go-forward basis. Leon Cooperman: So basically, how many shares is the new capitalization going to be? Matthew Engel: So total what we have today about 24 million shares outstanding, right? 8 million of that will be repurchased in the Blackstone transaction, which leaves you with about 16 million. And then the convertible notes, both the $150 million we have from the prior convertible notes and the $40 million notes we just added would add about 7 million plus our stock options get you back to about 24 million. So you'll see our total fully diluted share count go from what today is about 31 million, down to about 24 million on an adjusted basis going forward. Leon Cooperman: So are you suggesting that you generate about $4 a share in cash earnings? Graham Fleming: Yes, at $100 million in PTI, that would be correct. Operator: And everyone, at this time, there are no further questions. I'll hand the conference back to Graham Fleming for any additional or closing remarks. Graham Fleming: Yes. Thank you, everybody, for joining. We appreciate your participation, and we look forward to updating the full year numbers in March of next year. So thank you very much, everybody. Operator: Once again, everyone, that does conclude today's conference. We would like to thank you all for your participation today. You may now disconnect.
Roy Nir: Good afternoon, everyone, and welcome to Entravision's Third Quarter 2025 Earnings Call. I'm Roy Nir, Vice President of Financial Reporting and Investor Relations. Joining me today to discuss our results are Michael Christenson, our Chief Executive Officer; and Mark Boelke, our Chief Financial Officer. Before we begin, I would like to inform you that this call will contain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ. Please refer to Entravision's SEC filings for a list of risks and uncertainties that could impact actual results. The press release is available on the company's Investor Relations page and was filed with the SEC on Form 8-K. Additional information may also be found on quarterly report on Form 10-Q, which was also filed today. As you can see, our call today is via Zoom. If you'd like to ask a question, please use the Q&A function on the Zoom screen, indicate you name and company, and submit your question in writing. We will try to answer any questions that relate to the topics contained in today's call. I will now turn the call over to Michael Christiansen. Michael Christenson: Thanks, Roy, and thank you to those of you joining this call today. We appreciate your interest and your support. As you saw in our press release, on a consolidated basis, Entravision increased revenue 24% to $120 million in 3Q '25 compared to 3Q '24. We did have an operating loss of $9 million in 3Q '25 compared to an operating profit of $8 million in 3Q '24. The 3Q '25 operating loss included $9 million of restructuring costs and impairment charges, so we were breakeven, excluding those charges, still not good. As we've discussed on prior calls, we're committed to growing our business and earning a profit. So we acknowledge that we have work to do to improve our operating performance and profitability in our Media business. We report our results in two segments: Media and Advertising Technology & Services, what we call ATS. For our Media segment, our revenue declined 26% in 3Q '25 compared to 3Q '24. This was primarily due to lower political revenue, but also weaker revenue from national television and radio advertisers. Average monthly advertisers and revenue per average monthly advertiser for our local media operations in 3Q '25 were flat year-over-year. In terms of operating expenses and profitability, as we've discussed in the past, we have made a number of investments in our Media business in 2025. We've added capacity to our local sales teams, more sellers, and we've added digital sales specialists and digital sales operations capabilities so we could do more digital. When we analyzed our local markets and our local advertiser base, we saw an opportunity to increase revenue by adding sales capacity. In addition, virtually all our local advertising customers are advertising in digital channels, search, social, streaming video and streaming audio. We believe we can serve their needs in digital channels as well as our traditional broadcast video and audio channels. The increase in operating expenses in our Media segment for these investments is about $8 million on an annualized basis. We funded this investment in part by improving the efficiency and reducing costs in nonrevenue-generating operations. Nevertheless, the combination of lower revenue and increased operating expenses produced an operating loss in our Media segment of $3.5 million in 3Q '25 compared to an operating profit of $11.7 million in 3Q '24. Now for our Advertising Technology & Services segment. ATS revenue more than doubled in 3Q '25 compared to 3Q '24. We had more monthly active customers and higher revenue per monthly active customer. We continue to invest in our ATS segment in 3Q '25 to grow revenue and operating profits. We're investing in our engineering team to improve our technology and to build more powerful AI capabilities into our platform. And we're investing to increase the capacity of our sales organization and customer operations. In addition, our infrastructure costs, primarily cloud computing costs continue to grow as our revenue grows. They're currently growing at about the same pace as revenue. But as the business gets larger, we do expect to see some operating leverage. So we expect these costs will grow at a slower pace than revenue in the future. The combination of these investments, that's investments in increased operating expenses, direct operating expenses plus selling, general and administrative expenses were $7 million higher in 3Q '25 compared to 3Q '24, $30 million higher on an annualized basis. Even with that increase, operating profit for ATS was nearly $10 million in 3Q '25, significantly higher than our operating profit in 3Q '24. So, to summarize, in Media, we're investing to increase our local sales capacity and to expand our digital sales and digital sales operations capabilities, more sellers and more digital. In ATS, we're investing to add more engineers to advance our technology and to increase our sales capacity, so more technology, better technology and more sellers. We believe these investments will help us build a stronger company. Now I'll ask Mark to share with you some of the more details of our financial results for 3Q '25. Mark Boelke: Thank you, Mike. Let's start by reviewing revenue performance. On a consolidated basis, revenue for third quarter 2025 was $120.6 million, up 24% compared to third quarter 2024. In our Media segment, third quarter revenue was $44.5 million, which was down 26% compared to third quarter 2024. Our Media business began the year slowly, in part due to advertiser uncertainty in an environment of the new administration and federal immigration enforcement actions. In addition, there was significant political advertising in 2024 that was not present in 2025. However, we've seen sequential quarterly improvements as we move through 2025, particularly in local ad sales, and we're seeing momentum and progress on executing our revenue strategies. In our Ad Tech & Services segment, third quarter revenue was $76.1 million, which was up 104% compared to third quarter '24. We had a higher number of monthly active accounts and higher revenue per monthly active account. As discussed in previous quarters, we've had success executing our strategies in the ATS business during 2025, including expanding the sales team and geographic sales coverage and strengthening our platform technology and AI capabilities. We had exceptional performance in Q3 with sequential quarterly revenue growth from second quarter to third quarter of 38%. With that said, we do not expect to repeat this level of quarterly sequential growth in fourth quarter, and we currently anticipate fourth quarter revenue and earnings to be comparable to third quarter. Regarding expenses, one of our goals is to optimize our organizational structure and the expense of support services in order to align them with revenue and be profitable in each segment and on a consolidated basis. With that in mind, let's look at total operating expense for each of our segments. This refers to the sum of direct operating expense and selling, general and administrative expense, or SG&A, as those two line items are reported in our segment results. For our Media segment, total operating expense in third quarter '25 increased slightly compared to third quarter '24, about $140,000. At the end of third quarter '25, we took steps under an ongoing organizational design plan intended to support revenue growth and reduce expenses in our Media segment. Key components of this plan included a reduction of approximately 5% of the Media segment's total workforce, primarily in back-office roles, and we abandoned several leased facilities with impacted employees transitioning to remote work. In addition, we shut down certain legacy international operations within the ATS segment. We recorded charges during the third quarter totaling $3.2 million for the expenses associated with these moves, and these charges were reported as restructuring costs on our income statement. We expect these changes to reduce Media segment operating expense by approximately $5 million on an annual basis. We continue to evaluate the organizational structure of our media business in order to provide compelling content, drive sales, streamline our organization and optimize expense. Total operating expenses in our ATS segment increased by 58% in the third quarter of 2025 compared to 2024, an increase of $7.4 million. The ATS expense increase was primarily related to the increase in revenue. For example, as Mike mentioned, the expense of cloud computing services has increased as a result of processing more transactions and using stronger AI capabilities that are built into our ad tech platform. There was an increase in sales commissions and performance compensation as a result of the revenue increase and achievement of other performance metrics. And the ATS business has also hired additional sales, engineering and ad operations staff in recent quarters in order to drive ATS growth and expand into new geographic areas. Regarding segment results, the Media segment had an operating loss of $3.5 million compared to operating profit of $11.7 million in Q3 '24. This loss was due to a combination of lower revenue, mainly due to significant nonreturning political advertising revenue, which we had in Q3 of 2024. As I noted earlier, we have undertaken an ongoing organization design plan intended to support revenue growth and reduce expenses in this segment. Ad Tech & Services operating profit was $9.8 million, an increase of 378% versus Q3 '24. Our goal for this business is to generate positive operating leverage and the ATS revenue increase did exceed the expense increase in terms of percentage and absolute dollars. The operations of both segments together generated a consolidated segment operating profit of $6.2 million. This was a 55% decrease compared to third quarter 2024, attributable primarily to the Media segment, as I discussed earlier. On a consolidated basis, we had an overall operating loss of $9.1 million compared to operating income of $7.6 million in Q3 '24. Our operating loss included a noncash impairment charge of $5.7 million, primarily related to the assets held for sale as well as a charge of $3.2 million for the expenses associated with the restructuring costs that I mentioned a few moments ago. Our goal is to be profitable for each segment and generate a consolidated operating profit. As Mike mentioned, we have additional work to do, and we remain focused on growing revenue and reducing expense throughout the remainder of 2025 and beyond. Turning to corporate expenses. We've taken significant steps to reduce corporate expense over the past 1.5 years. We had $6.3 million of corporate expense in third quarter '25. This is a decrease of 9% compared to third quarter '24 or about $600,000. The decrease was primarily due to a reduction in audit fees and rent expense. On a year-to-date basis, we reduced our corporate expense by $9.5 million compared to the prior year. Entravision's balance sheet remains strong with over $66 million in cash and marketable securities at the end of third quarter. We're proud of our strong balance sheet, which we believe sets us apart from others in the industry. Our strategy regarding allocation of cash is, first, reduce debt and maintain low leverage; and second, return capital to our shareholders, primarily through dividends. We entered into an amendment to our credit facility in the third quarter, as we noted on our second quarter earnings report and 10-Q. The amendment was a proactive and strategic move to accelerate debt reduction and provide more financial stability and flexibility under our credit agreement. During 2025 year-to-date, we have made total debt payments of $15 million, reducing our credit facility indebtedness to about $173 million as of third quarter end. In addition, we paid $4.5 million in dividends to stockholders in the third quarter or $0.05 per share. For the fourth quarter, our Board of Directors has approved a $0.05 dividend per share payable on December 31 to stockholders of record as of December 16, for a total payment of approximately $4.5 million. We'd like to thank you for joining our call today. We welcome our investors to connect with us through the Investor Relations page on our corporate website, entravision.com, where you will have access to a transcript of this call, the press release containing our third quarter financial results and a copy of our Form 10-Q quarterly report filed with the SEC. At this time, Mike and I would like to open the call for questions from the investment community. And Roy, I'll turn it back over to you. Roy Nir: Thank you, Mark. We'll now begin the question-and-answer session. As a reminder if you have a question please use the Q&A function on the Zoom screen, indicate you name and company and submit your question in writing. Please hold as we review any questions. The first question coming in, Mike and Mark, can you comment on the outlook for political revenue in 2026? Michael Christenson: Sure, Roy. Thank you. I think that's probably an appropriate question since we're now precisely one year away from the election day in 2026. What I can say is we're obviously positioning ourselves for a very strong political spending environment in 2026. We believe that the Latino vote will be critical to the outcome of the congressional elections in our six Southwestern states. The Cook Political report lists 16 critical toss-up races of the 435 races, congressional races in 2026. We have TV and radio in 6 of those 16 markets. So we're very well positioned there. We also have key U.S. Senate races, including Texas. And then we have governors races in California, Colorado, Nevada, New Mexico and Texas, plus smaller opportunities in Connecticut and Massachusetts. So this will be one of the most consequential congressional elections, frankly, in our lifetime. Who wins in Nevada and Arizona will also have a significant influence on the 2028 presidential elections. So we believe that the Latino vote will be critical to the outcome of all these elections, and we have a powerful -- a unique and powerful channel for reaching that audience. So we're very excited about the opportunities coming up and working hard to make sure we're well positioned. Roy Nir: Thank you, Mike. And we received another question related to our call. The question is, what's the status of renewing the affiliation agreement with TelevisaUnivision? Michael Christenson: Thanks for that question. Our affiliation agreement with TelevisaUnivision runs through December 31, 2026. We've been partners with Univision for three decades, nearly three decades. Our plan is to renew that agreement. And we are in discussions with TelevisaUnivision. co we're working to that goal. Roy Nir: Thank you, Mike. At this time, we don't have any more questions. Mike, I will turn it back to you for any closing remarks. Michael Christenson: Thanks, Roy. And again, thank you to all of you for joining our call today. We look forward to speaking with you again when we report our fourth quarter results. Thank you.
Operator: " Kevin Salsberg: " Jodi Shpigel: " Lesley Gibson: " Lorne Kalmar: " Desjardins Securities Inc. Sam Damiani: " TD Cowen Michael Markidis: " BMO Capital Markets Pammi Bir: " RBC Capital Markets Operator: Thank you for standing by. My name is Lauren Cannon, and I will be your conference operator today. At this time, I would like to welcome everyone to CT REIT's Q3 2025 Earnings Results Conference Call. [Operator Instructions] The speakers on the call today are Kevin Salsberg, President and Chief Executive Officer of CT REIT; Jodi Shpigel, Senior Vice President, Real Estate; and Lesley Gibson, Chief Financial Officer. Today's discussion contains information that may constitute forward-looking information within the meaning of applicable securities laws. Although the REIT believes that the forward-looking information in today's discussion is based on information, estimates and assumptions that are reasonable, such information is necessarily subject to a number of risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied in such forward-looking information. For information on these material risks, uncertainties, factors and assumptions, please see the REIT's Q3 2025 and annual 2024 MD&A as well as the 2024 AIF, which are available on our website and filed on SEDAR. The REIT does not undertake to update any forward-looking information, whether written or oral, except as is required by applicable laws. I will now turn the call over to Kevin Salsberg, President and Chief Executive Officer of CT REIT. Kevin? Kevin Salsberg: Thank you, Lauren. Good morning, everyone, and thank you for joining us today on CT REIT's quarterly investor conference call. I am happy to report that Q3 2025 was another strong quarter for CT REIT as we delivered growth in net operating income of 5.5%, growth in AFFO per unit of 2.9% and continue to maintain our portfolio occupancy above 99%. CT REIT's stable portfolio and reliable growth have for more than a decade now, provided our investors with an opportunity to participate in a real estate strategy that leverages our privileged relationship with Canadian Tire in order to deliver value for all of our unitholders. In the quarter, we acquired a strong performing Canadian Tire-anchored shopping center in Calgary from a third party, completed the redevelopment of an enclosed mall that we own in Winkler, Manitoba and began construction on the Canadian Tire head office retrofit at Canada Square. And subsequent to the quarter end, we bought out the underlying freehold interest in a property that we had previously land leased in Fort Saskatchewan, Alberta. While each of these projects is different and unique in terms of geography, asset type and real estate intervention, they collectively tell a story about CT REIT's ability to find new ways of deploying capital and source different avenues of growth. We continue to work closely with Canadian Tire on their development requirements and the real estate components of their True North strategy as we continue to build our own pipeline of deals with over 1 million square feet of development projects currently expected to be delivered between now and the end of 2028, including the newly announced expansion of a Canadian Tire store in Collingwood at a property that we acquired from a third party several years ago. Whether from organic growth derived from our existing portfolio of properties, new CTC-related development opportunities or strategically consolidating the ownership of third party-owned CTC-related assets, CT REIT's growth prospects continue to look bright. And with a conservative and prudently managed balance sheet, we have the financial flexibility to lean into these opportunities so that CT REIT can continue to deliver strong, reliable and durable results and create value for our stakeholders as we look to the road ahead. I will now turn it over to Jodi and Lesley to provide some additional details on the quarter, our results and our leasing investment and development activities. Jodi? Jodi Shpigel: Thanks, Kevin, and good morning, everyone. As highlighted in our press release yesterday, we are pleased to announce 2 new investments this quarter. Our first new investment involves the acquisition of the freehold interest underlying an existing ground lease along with an adjacent multi-tenant commercial retail building in Fort Saskatchewan, Alberta. Additionally, we are expanding the Canadian Tire store located in Collingwood, Ontario that Kevin mentioned earlier. These new investments require a total of $90 million to complete and are projected to earn a going-in yield of 6.45%. Combined, they will add approximately 50,000 square feet of high-quality GLA to our portfolio. In the third quarter, we completed 2 previously announced projects, the acquisition of a Canadian Tire anchored property in Calgary, Alberta that we discussed last quarter and the redevelopment of our existing enclosed mall in Winkler, Manitoba. Since acquiring Southland Mall in Winkler, Manitoba in 2016, the REIT has made substantial improvements to the property, including the expansion of the Canadian Tire store in 2018 as well as a significant demalling and renovation that has allowed us to introduce new retailers to the mall, including Winners, Anytime Fitness, Stacked Pancake House and a relocated and expanded Mark. Part of the rationale for acquiring this property originally was based on the strength of the Canadian Tire store and the steps that we have taken since that time illustrate how the REIT has been able to create value in an asset that we decided to invest in based on the insights that we gleaned through our relationship with Canadian Tire. The Calgary acquisition and the Winkler redevelopment totaled $72 million and have added over 350,000 square feet of additional GLA to our portfolio. Our development pipeline overall remains strong with 20 projects at various stages, 7 of which are expected to be completed by the end of this year and the remainder expected to be completed in 2026 and beyond. These developments, including Canada Square office retrofit projects represent a total committed investment of approximately $427 million upon finalization, $113 million of which has already been spent and $148 million of which we anticipate will be spent in the next 12 months. Once built, these projects will add a total incremental GLA of just over 1 million square feet to the portfolio, approximately 90% of which has been leased. With respect to our leasing activities, during the third quarter, CT REIT completed 4 Canadian Tire store lease extensions. And as of the end of Q3, the weighted average lease term for our portfolio was 7.3 years, which remains one of the longest in the sector. At the end of the quarter, CT REIT's occupancy rate remained strong at 99.4%. I will now turn it over to Lesley to discuss our financial results. Lesley? Lesley Gibson: Thanks, Jodi, and good morning, everyone. We were pleased with the results delivered by the REIT again this quarter. This quarter, same-store NOI increased 2.0% or $2.3 million, mainly driven by contractual rent escalations averaging 1.5% per year as contained in the Canadian Tire leases. Same-property NOI saw a rise of 2.6% or $3 million compared to the previous year. This increase was largely due to the same-store NOI growth mentioned earlier, along with approximately $700,000 of additional contribution from intensifications completed in 2024 and 2025. Overall, in the third quarter, NOI experienced robust growth of 5.5% or $6.2 million. This was fueled by the $3.2 million contribution from the 4 acquisitions completed in '24 and '25 as well as the development completions over that time. In the third quarter, excluding fair value adjustments, G&A expense as a percentage of property revenue was 2.5%, which was higher than the same period in the prior year of 2.2%. This increase was due to the timing of a deferred income tax provision in 2024 that reversed by the end of the year. On a year-to-date basis, G&A expenses as a percentage of revenue are running at a consistent 2.9%. The fair value adjustment of $36.7 million in the quarter was primarily driven by contractual rent increases, leasing renewals and changes to certain valuation metrics and assumptions as well as the development completions within the property portfolio. In the quarter, diluted FFO per unit was up 2.1% to $0.338 compared to $0.331 in the third quarter of 2024. AFFO per unit on a diluted basis was $0.317, up 2.9% compared to Q3 of 2024. Cash distributions paid in the quarter increased 2.5% compared to the same period in the previous year due to the increase in distributions, which became effective with the monthly distributions paid in July 2025. With the increase in AFFO per unit outpacing the rate of the monthly distributions, the AFFO payout ratio for Q3 was 74.8%, a slight improvement from 75.0% in the period last year. Turning to the balance sheet. Our interest coverage ratio for the current quarter was 3.37x compared to 3.52x in the same quarter of 2024. This decrease is due to a combination of increased interest costs resulting from the resetting of the interest rate on the Series 3 and 16 to 19 Class C LP units effective June 1, 2025, higher utilization of the credit facilities to fund acquisitions, intensifications and developments in '24 and '25 as well as the issuance of the $200 million Series J unsecured debentures in June of this year. The indebtedness to EBIT fair value ratio was 6.61x during the quarter, improved from last year's ratio of 6.81x. Our indebtedness ratio this quarter was 39.8%, down from 40.7% at the end of last year. This improvement is mainly attributable to the continued increases in the fair value of investment properties and higher total assets from acquisitions and developments, partially offset by the increased use of the credit facilities. The ratio has consistently trended lower over recent years, giving us ample financial flexibility for future growth. Lastly, with respect to liquidity, we ended Q3 with $5 million of cash on hand, $298 million of that remains available through our committed credit facility and a further $186 million is also available on our uncommitted facility with Canadian Tire Corporation. And with that, I will turn the call back to the operator for any questions. Operator: [Operator Instructions] Our first question comes from the line of Lorne Kalmar with Desjardins. Lorne Kalmar: Just on the Canada Square retrofit, I was wondering what is the progress on tendering costs? I mean, obviously, you guys have started work there. And have you guys seen any reprieve on the cost side with sort of the slowdown in development activity more broadly? Jodi Shpigel: Lorne, it's Jodi. Thanks for the question. So, the retrofit just started this quarter effectively. So, it really starts to pick up the pace in 2026 and beyond. So, it's in the initial stages so far. Oxford, of course, is managing this on behalf of the co-owners. They are in the process of tendering and securing the various contracts and trades. They have their CM in place. I don't think there's been any noticeable difference in terms of tendering versus budget at this stage. However, I would say it's early on in the retrofit. So that could be a case as we move forward. Lorne Kalmar: Lovely. And then just on the intensification development side. Obviously, Canadian Tire is a large chunk of that. But one thing we've been hearing is there's a lot of opportunity out there to intensify for other retailers. I was just wondering if you guys are seeing any demand and if that's something you look to focus the pipeline a little bit more on as dynamics call for it. Kevin Salsberg: Lorne, it's Kevin. We definitely have inbound interest from retailers. We don't have a lot of large pad opportunities that can accommodate the users who are expressing interest, grocery, pharmacy, liquor. Most of our pad opportunities are smaller, and we've actually affected quite a few of them to date. But that doesn't mean we're not out selectively looking for alternative sites or opportunities to work with the retailers who are looking to expand. Our Lloydminster redevelopment is a good example of where we can take advantage of opportunities like that. So yes, we're trying to find the balance between the demand side, finding opportunities that we can make financial sense of and obviously, where it complements existing assets. Operator: Our next question comes from the line of Sam Damiani with TD Securities. Sam Damiani: Maybe just to get into the leasing side of the business, maybe Jodi, if you could just comment on leasing spreads in the quarter, both to Canadian Tire and third-party tenants. Jodi Shpigel: Sam, it's Jodi. On third-party renewals, it's typically our volumes are on the lower side just because of our -- the high occupancy rate and that the bulk of our activities with Canadian Tire. So, it is at the lower end. I'd say the spreads though are consistent with what we see in every other quarter. So, we're pleased with that. In terms of the related party, we had quite a number this quarter, as noted. Obviously, we don't comment on the specifics, but the escalations that we achieved have been continuing on these fronts. Kevin Salsberg: And Sam, as we've talked about before, as we look at the escalations, we are looking at market-specific dynamics. And whereas on average, certainly 1.5% is the number for the entire portfolio. There are selective opportunities within each set of renewals to address that and possibly get that number a little higher. And we also continue to have discussions with Canadian Tire about as we, I guess, enter into some of the metier years in terms of the number of renewals that we'll be dealing with what the best collective situation is for both the REIT and for CTC in terms of continuing on with the annual rent escalations or looking at more conventional fixed 5-year rent numbers. So as of right now, we're still playing with the same rhyme scheme, but that could be subject to change in the future as we've discussed before. Sam Damiani: And Kevin, your comment on looking at other alternatives versus the annual escalations. I mean, what would be the, I guess, the benefit for the REIT in looking at a different structure? Kevin Salsberg: Well, like you guys, we can forecast out the next 5 to 10 years based on our portfolio and obviously looking to if there's any spread between one versus the other. The fixed contracts to recall, have a floor and a ceiling in terms of the renewal rate. They can't be less than the amount they were paying in the preceding term, and it's capped out at 112%. So just based on where we forecast the market to be and where it might be going, if there is a difference financially for us, that's a benefit to look at one version versus the other. To date, there hasn't been a big difference, but that might not always be the case. Sam Damiani: Appreciate that. And then just on the macro, it's a little more challenging. Are you seeing any retailers start to feel some pain, given any known move-outs in the portfolio, any problem tenants, bad debt expense, any of that sort of getting a little bit coming into focus these days? Kevin Salsberg: That hasn't been our experience. We don't have any real bad debt that's any different than in any preceding periods. I don't think there's -- the major retailers are -- seem to be showing any signs of weakness at this point. Certainly, with the base stores coming back to some of the major landlords out there, there could be a little bit of distraction in terms of other opportunities. There's a lot of square footage to be addressed in the market. Not all of it obviously reusable or appropriate to the tenants that we deal with. But I don't -- I think the only indication of potentially them slowing down with respect to our discussions would be based on other alternatives in the market that they're considering. Sam Damiani: And last one for me. Just in Kelowna with the new store, I guess, ready to be opened soon. And I believe the REIT owns the other store that's going to be vacated in that market. Is there plans to backfill that? What's the sort of plan there? Kevin Salsberg: We're working on that right now, Sam. We do have a couple of different alternatives for the site. So, we're thinking our way through options. So, stay tuned. Operator: [Operator Instructions] Our next question comes from the line of Mike Markidis with BMO Capital Markets. Michael Markidis: Two quick ones for me. I guess just first on Winkler, just a modeling question here. I guess it's a redevelopment that came on stream in the third quarter. Presumably, there was -- it's now substantially complete, but presumably there is some income tied to it before. So, what -- how should we be thinking of the increment from that delivery that came on stream going forward? Kevin Salsberg: With that particular one, Mike, we had -- at one point, the Canadian Tire store in HUD because we're expanding it and the mall wasn't. And then the store went back in and the mall went into PUD. I would say maybe 60% is attributable to the mall versus 40% to the CT store, if that helps. Michael Markidis: So, the total amount delivered is just with respect to what was completed, not the entire project? Kevin Salsberg: That's right. The mall redevelopment component of it. Michael Markidis: And then just with respect to the $148 million of capital that you guys have to spend or are committed to spend over the next 12 months. Obviously, opportunity dependent. But given where your balance sheet is, where your cost of capital is, what's your appetite if the opportunities present themselves to ramp that up materially further? How much capacity do you see yourselves as having? Kevin Salsberg: I think we have a strong appetite to ramp it up. I don't know if I would describe that appetite as material. We see some opportunities in the market. And I think we're in a good spot. We've talked about our dry powder in past quarters. And certainly, we have the financial capability and flexibility to go hunting a little bit. But retail is still among the most sought-after asset classes. The type of assets we're looking at are well leased with good tenants. So, there's competition for that. But we try to pick our spots. And I think we've got a nice pipeline on the development side. We're showing all the different ways we can affect our growth through our investment program. And I think we'd like to do a little bit more as we look to 2026, if possible. Michael Markidis: And actually, just one more for me before I turn it back. So, with respect to hunting out there for retail, is the acquisition criteria such that if it doesn't -- from third parties, if it doesn't have a CT Canadian Tire store in it, that it would potentially -- that would be the goal is to have something like that? Or would you ever purchase something that would just be a third-party retail property and so be it? Kevin Salsberg: We would definitely purchase third-party retail property unaffiliated with Canadian Tire. Now there's 2 versions of what that could look like, something that's a little bit more strategic. So adjacent lands, adjacent assets, something that we think long-term, we can bring Canadian Tire into. So, I'll say, unaffiliated with Canadian Tire in its current form, but potential strategic rationale for why we'd be acquiring it. The other ones that we would look at is things like what we've done in the past with our bank branch portfolio, just third-party single-tenant net lease, long-term leases, good credit type assets portfolios preferably. But it's been a long time since we've seen something like that, that we're interested in, that the pricing works for us. I mean it's gotten quite expensive in that space, especially when you're talking about tenants like banks or certain QSR restaurants or pharmacies. So again, we've always looked at that opportunistically. We like it. We'd like to own more of it, but we're only going to do that if it makes sense for us. Operator: Our next question comes from the line of Pammi Bir with RBC Capital Markets. Pammi Bir: Maybe just one for me. Along the lines of acquisitions, can you maybe just comment on perhaps the timing of when we may see additional bend-ins from CTC. If I recall, I think there's maybe 15, 20 properties left in that -- left at that level. And then secondly, if you have any comments on the potential value of those remaining assets? Kevin Salsberg: Pammi, yes, there's probably closer to 15 now. We've always looked at the bend-ins as a lever we can pull when maybe there isn't as much development or as much third party that's ongoing to continue our steady pace of investment activity generally. So, I think you'll see us continue to do a couple a year. I think the total size of the Canadian Tire portfolio that we would be interested in buying is probably somewhere between $150 million and $200 million today. Operator: As there are no further questions at this time, I will turn the call over to Kevin Salsberg, President and CEO, for closing remarks. Kevin Salsberg: Thank you, Lauren, and thank you all for joining us today. We look forward to speaking with you again in February after we release our Q4 results. Have a good day. Operator: This concludes today's call. You may now disconnect.
Operator: Greetings, and welcome to the Zeta 3Q '25 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Matt Pfau, SVP of Investor Relations. You may begin. Matt Pfau: Thank you, operator. Hello, everyone, and thank you for joining us for Zeta's Third Quarter 2025 Conference Call. Today's presentation and earnings release are available on Zeta's Investor Relations website at investors.zetaglobal.com, where you will also find links to our SEC filings, along with other information about Zeta. Joining me on the call today are David Steinberg, Zeta's Co-Founder, Chairman and Chief Executive Officer; and Chris Greiner, Zeta's Chief Financial Officer. Before we begin, I'd like to remind everyone that statements made on this call as well as in the presentation and earnings release contain forward-looking statements regarding our financial outlook, business plans and objectives and other future events and developments, including statements about the market potential of our products, potential competition, revenues of our products and our goals and strategies. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected. These risks and uncertainties include those described in the company's earnings release and other filings with the SEC and speak only as of today's date. In addition, our discussion today will include references to certain supplemental non-GAAP financial measures, which should be considered in addition to and not as a substitute for our GAAP results. We use these non-GAAP measures in managing our business and believe they provide useful information for our investors. Reconciliations of the non-GAAP measures to the corresponding GAAP measures, where appropriate, can be found in the earnings presentation available on our website as well as our earnings release and our other filings with the SEC. With that, I will now turn the call over to David. David Steinberg: Thank you, Matt. Good afternoon, everyone, and thank you for joining us today. For the 17th quarter in a row, we once again delivered a beat and raise quarter, driven by our leadership in AI-powered marketing. In Q3, revenue was $337 million, up 28% year-over-year ex political and LiveIntent. This is an acceleration in growth from Q2. Adjusted EBITDA was $78 million, up 46% year-over-year. And free cash flow was $47 million, up 83% year-over-year, representing a margin of 14%. This is the highest free cash flow margin we have ever achieved, and we did it while accelerating our revenue growth ex political and LiveIntent. This demonstrates our focus on driving growth and improved profitability while investing to extend our AI leadership. Based on our year-to-date momentum and our record pipeline exiting Zeta Live, we are raising our 2025 revenue guidance by $11 million at the midpoint and providing an initial 2026 outlook well ahead of consensus. In October, we hosted our fifth annual Zeta Live, our most successful event yet with max capacity audience. Attendance was up 35%. And unfortunately, we had to turn away a large number of people. For next year, we are currently looking for a bigger venue. We had strong executive participation, representing more than $100 billion in annual marketing spend decision-makers in attendance. At Zeta Live, we hosted 38 sessions, featured 95 speakers, delivered nearly 120 product demos and shockingly served 7,600 coffees to the 1,500 attendees. Customer feedback was overwhelmingly positive with many attendees commenting that it was one of the best events they have ever attended. Our goal is to close over $100 million in incremental business coming out of Zeta Live. At Zeta Live, we launched Athena, our next step in leading the AI revolution in marketing. Athena is our AI conversational, superintelligent agent that becomes the intelligent operating system for our clients' businesses and ultimately for their lives. Athena marks a major breakthrough in human AI collaboration, removing the friction between the human and artificial intelligence and acting as a real-time voice-activated command center for the Zeta marketing platform. One workspace to plan, execute, analyze and optimize in plain-spoken English. AI is the new UI and Athena proves it. You speak your objectives, it builds the experience, launches the program and delivers insights on one screen, making it easier to adopt more channels, more use cases and ultimately drive greater ROI and spend on Zeta's platform. The business impact of using Zeta is already proven. Independent analysis shows Zeta stands up 50% faster than our peers and delivers a 6:1 return on investment. And with Athena making the platform radically easier and more intuitive, we believe these numbers will only get stronger. This is how AI becomes a habit, not a headline. Adoption scales, usage deepens and the platform becomes harder to leave. We believe Zeta is uniquely positioned to develop Athena for 3 key reasons: First, data advantage. Our Zeta Data Cloud gives Athena rich real-time signals for personalization and prediction that generic AI just cannot match. Second, native integration. Athena is embedded in the Zeta Marketing Platform, connecting answers to actions and insights to activation and measurement. Unlike our competitors who have legacy tech debt and cannot natively embed AI into their marketing clouds. Third, AI track record. AI is foundational to what we do at Zeta. We have natively built AI into our platform since 2017, and we believe this AI leadership is the reason we are winning today. At Zeta, artificial intelligence is foundational to our business, not an add-on like our competitors are building. The reception from customers, prospects and partners has been incredible. If you did not attend the standing room-only Athena demo at Zeta Live, I encourage you to watch it in the Investor Relations section of Zeta's website. It is truly game changing. Athena is in internal beta now, and we expect it to be in client beta by the end of Q4 and fully production ready by the end of the first quarter of 2026. OneZeta is a key growth engine for us and a growth flywheel for our customers as they consolidate more data and use cases into the Zeta Marketing Platform. Customers who adopt 2 or more use cases generate greater than 3x the annual revenue of a single use case customer, have our highest NPS score and see the highest return on marketing spend. We have accelerated this focus under Ed See, our Chief Growth Officer, and the results are meaningful. For example, a leading big box retailer consolidated acquire, grow and retain onto the ZMP at the start of our relationship. That agreement was greater than 3.5x the size of a standard deal with similarly sized enterprises. Second, one of the fastest-growing specialty retailers started with the retain use case and recently added a grow use case. As a result, the customer is expected to spend over $2 million with us in the fourth quarter compared to only $700,000 in the first quarter, a threefold increase, and we expect this customer to continue to grow into next year. We expect the strong pipeline generated from Zeta Live, combined with the acquisition of Marigold’s enterprise software business, which includes over 100 enterprises, 20 of the top 100 advertisers in North America and more than 40 Fortune 500 companies who are all currently only on one use case, will further accelerate our OneZeta momentum into 2026 and beyond. I'll close with an update on our agreement to acquire Marigold's enterprise software business. We remain on track to complete the acquisition by the end of the year. After spending the past several weeks getting to know the business and the team better during the closed process, I am even more enthusiastic about the opportunity this acquisition represents. Strategically, the data that we pick up, including the loyalty program, will be game-changing to training our proprietary algorithms, including our Athena, answers and generative engine optimization products and widens our data cloud moat. We hosted several of their employees and customers at Zeta Live and the 1 plus 1 equals 4 opportunity is more clear than ever. Great numbers are the output. The inputs are great execution, products and people. The reason we are growing at an accelerated pace is simple. We have superior artificial intelligence and data to our competitors that we started developing 8 years ago, not 8 months ago. Our consistent execution over the past 17 quarters as a public company is a credit to our artificial intelligence, our people and our data. Quarter after quarter, we have raised the bar. As always, I would like to sincerely thank our customers, our partners, team Zeta and all of our shareholders for the ongoing support of our vision. Now let me turn it over to Chris to discuss our results in greater detail. Chris? Christopher Greiner: Thank you, David, and good afternoon, everyone. The theme of our Investor Day in October was durable, predictable and profitable growth, and our third quarter results are a perfect illustration of this. Our revenue growth, excluding political and LiveIntent, accelerated to 28% in Q3 from 27% in Q2 and 26% in Q1, showing the durability of our growth. Our third quarter results once again exceeded our guidance for both revenue and adjusted EBITDA, highlighting the predictability of our growth. And we achieved the highest free cash flow margin in our history, achieving the Rule of 40 on a free cash flow margin basis, demonstrating the profitability of our growth. With that, let's dive into the details of the quarter. In Q3, we delivered revenue of $337 million, up 26% year-over-year or 28% when excluding the contribution from LiveIntent and political candidate revenue in the year ago period. We exceeded the midpoint of our guidance by $9 million or 3 percentage points higher than our forecast, solidly within the 2 to 5 points of cushion we typically leave ourselves. Total scaled customer count grew to 572, up 20% year-over-year and an addition of 5 customers sequentially. We ended the quarter with 180 super-scaled customers, up 25% year-over-year and an addition of 12 customers sequentially. The strong super-scaled customer additions were broad-based across industry verticals and driven by cross-sell of LiveIntent customers and our OneZeta initiative. Scaled customer quarterly ARPU of $579,000 increased 4% year-over-year or 13% when adjusting for political candidate revenue. Super-scaled customer quarterly ARPU of $1.6 million was up 1% year-over-year or 12%, excluding prior year political candidate revenue. From an industry perspective, 7 of our top 10 verticals in the quarter grew faster than 20% year-over-year on a trailing 12-month basis, an improvement from 6 in the first and second quarters. The additional 20% plus growth industry was telecom, where we have had multiple significant wins over the past year and has been a focus of ours this year. It's also worth noting growth in consumer discretionary verticals like retail, travel and hospitality and automotive remained strong in the quarter. And finally, all 3 of the non-20% growth industries were up year-over-year between 7% and 17%. Our direct mix in the third quarter was 75%, consistent with the second quarter and an increase from 70% in the year ago quarter, demonstrating continued success of our agency direct-to-channel adoption. Our GAAP cost of revenue in the quarter was 39.5%, a 13 basis point increase year-over-year and 160 basis points sequentially. The increase in cost of revenue was driven by strong sequential and year-over-year growth in display and video, channels where we continue to see customers investing and which remain highly effective channels for customer acquisition and growth. In the third quarter, we generated $78.1 million of adjusted EBITDA at a margin of 23.2%, 320 basis points higher year-over-year and $7.4 million better than the midpoint of our guidance. This marks the 19th quarter of expanding adjusted EBITDA margins year-over-year. Our GAAP net loss for the third quarter was $3.6 million, an improvement from a loss of $17.4 million in the third quarter of 2024. There were $6.5 million of acquisition-related expenses in the third quarter, which absent these costs, we would have been GAAP profitable. Third quarter net cash provided by operating activities was $57.9 million, up 68% year-over-year with free cash flow of $47.1 million, up 83% year-over-year and representing a margin of 14%. This represents a free cash flow conversion of 60%, a significant improvement from 48% in the third quarter of 2024 and 57% in the second quarter of 2025. This also includes a roughly 18-point working capital headwind driven by longer agency payment cycles. The improvement in both adjusted EBITDA margin and free cash flow conversion in the third quarter exhibit the strong operating leverage of our model and put us firmly on track to achieve our Investor Day targets of a 30% plus adjusted EBITDA margin and greater than 70% free cash flow conversion in 2030. During the third quarter, we repurchased 1.7 million shares for $28 million and have repurchased 6 million shares for $85 million year-to-date. We also continue to make significant progress in reducing dilution and stock-based compensation expense. Just like the second quarter, in the third quarter, we had 0 net dilution and year-to-date, our dilution is 1.6% as of September 30. We remain on track to achieve both our 4% to 6% normal course dilution target in 2025 and our $190 million equity compensation expense target even when factoring in the equity we anticipate issuing for the Marigold acquisition. Before diving into our updated fourth quarter and 2025 guidance, I want to reiterate what I said on the recent Marigold acquisition call regarding forward-looking estimates. Given there could be variability in the close date, which we continue to anticipate will happen in the fourth quarter of 2025, we have not included any Marigold-related contributions in our 2025 guidance and continue to guide analysts to not yet include Marigold in their 2025 or 2026 estimates until the transaction closes. Upon closing, we will provide guidance on Marigold's contribution for 2025 and 2026. We want to make sure that consensus estimates do not become a mixed bag of organic and acquisition-related revenue. As we have done with prior acquisitions, we plan to clearly break out the organic versus acquired revenue for the first year post transaction upon announcement of closing. With that in mind, we're raising fourth quarter and full year revenue, adjusted EBITDA and free cash flow guidance. Details can be found starting on Slide 16 of our earnings supplemental. For the full year 2025, we are increasing the midpoint of our revenue guidance by $11 million to $1.275 billion, representing a 26% year-over-year growth when excluding political and LiveIntent, which is 5 points higher than our starting point for the year at 21%. For the fourth quarter, we now expect revenue of $364.5 million at the midpoint, $2 million higher than our previous guidance and representing year-over-year growth of 16% or 23% when excluding political candidate and LiveIntent revenue, which is consistent with our Zeta 2028 plan to grow 20% or greater organically. For adjusted EBITDA, we're increasing the midpoint of our 2025 guidance to $273.7 million, up $9 million from our prior guidance and representing a year-over-year increase of 42% at a margin of 21.5%, an improvement of 230 basis points over 2024. For the fourth quarter of 2025, we now expect adjusted EBITDA of $90 million at the midpoint, up from our previous expectation of $88.4 million and representing growth of 28% and a margin of 24.7%. We are also increasing the midpoint of our 2025 free cash flow guidance to $157.4 million, up $15 million from the midpoint of our previous guidance and representing year-over-year growth of 71% and a conversion of 57% of adjusted EBITDA. This conversion is up 10 points from 2024. For context, since our initial 2025 guidance back in February, we have increased revenue by $35 million and free cash flow by $28 million. Now let me transition to looking beyond 2025 and setting our initial organic guidance for 2026. While providing out-year guidance in Q3 is not intended to become standard practice, we're doing so this year because we want to establish a clean organic baseline for 2026 before Marigold is incorporated into our guidance. At our recent Investor Day, we spent time demonstrating our track record of 5 straight years of at least 20% revenue growth and free cash flow margin expansion. The punchline is, we see another year ahead of us with each at substantially higher scale. In terms of revenue, we're guiding 2026 to be $1.54 billion or 21% growth on 2025 guidance of $1.275 billion. Importantly, this is an organic-only view and does not include Marigold. Our guidance assumes $15 million of political candidate revenue, which we would expect to evolve and is 2x what the midterms were in 2022. We expect $354 million of adjusted EBITDA in 2026 or a 23% margin, up 150 basis points year-to-year. We see an initial view of 59% free cash flow conversion, yielding $209 million in free cash flow at a margin of 14%. And lastly, we continue to plan for a guidance model with 2% to 5% top line buffer. From a seasonality perspective, we expect revenue in the first quarter to be $314.5 million, up 19% year-to-year and accounting for roughly the same percentage of full year revenue in the first quarter as 2025 and with an adjusted EBITDA margin of 17.8%. I'll conclude where I began. Our third quarter results, updated 2025 guidance and initial outlook for 2026 underscore the durability, predictability and profitability of our growth and reflect the confidence and momentum we have in the business. Now let me hand the call back over to the operator for David and myself to take your questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Arjun Bhatia with William Blair & Company. Arjun Bhatia: Perfect. Congrats on another great quarter, guys, very nicely done. One question for you, David. Just at a high level, I'm curious like as you look at the next kind of pocket of spend that's out there, I imagine a lot of it is going to come from media budgets. How do you think kind of Zeta's ROI or ROAS compares to that of the walled gardens? Are you hearing more customers come to you and say, you're getting to parity? Are you already there? Because -- how do you go after that kind of large pool of budget dollars on spend? David Steinberg: Thank you, Arjun. I'm obviously very proud of the team for the quarter. Let me start by saying that if you look at our collective clients, you've got 572 clients that spend over $100 billion a year in marketing today. If you look at the global marketing spend, it's about 75% media and about 25% CRMS revenues. When we look at the breakdown of those 2, we continue to be substantially more profitable than anybody else in the media space. In fact, a number of our clients use our platform, which allows our data to inform the way they market into the walled gardens today, and we already partner with most all of the walled gardens. So when you think about it, every dollar that is spent through the Zeta Marketing platform returns a 6x return in revenue to our clients. That puts us on par with pretty much any walled garden. And what we're starting to see in a post-Gemini and post-OpenAI world, marketers are looking for new methodologies to create customers and maintain the customers they have. It's been challenging as the vast majority of the questions that are now asked on the Google platform and certainly all that are asked on the OpenAI platform, ChatGPT, are answered on platform. So what used to be sent to our clients or to other publishers is now being consumed there. So clients are very much looking for new methodologies. We continue to be at the forefront of that. And I think that was a big part of what you saw us talk about at Zeta Live, and I think it's a big part of what you're seeing in the tailwind that we're currently experiencing. Arjun Bhatia: All right. Perfect. Very helpful. And then maybe one just on customer count and me nitpicking a little bit here, but it seems like in Q3, I think you added 5 scaled customers. And if I look at just the last 2 quarters, it's been hovering around 20. Is there anything sort of one-off that we need to consider there, just maybe agencies and us not having brand count visibility? And just how should we think about that metric sort of evolving over the next couple of quarters? Christopher Greiner: Yes, I'm glad you asked, Arjun. Three data points for you. First, on a year-over-year basis, that 20% growth in total scaled customer count is, a, consistent with where we've been this year and obviously north of our model of 4% to 5%. But to your point around sequentially, we had a really strong progression from scaled to super-scaled customers. We increased by 12% sequentially, which is, if you look back at our history, certainly at the higher end. And then to your point around agencies, what's also being masked in the total-scaled customer count is we were up 23 brands quarter-to-quarter. So as we continue to have success scaling within and adding new agencies, that doesn't necessarily add to scaled customer count. But in this case, it certainly translates to higher brand expansion. So we're really happy with the scaled customer count expansion this quarter. Operator: Our next question comes from the line of Elizabeth Porter with Morgan Stanley. Elizabeth Elliott: I wanted to follow up, David, on your target for the $100 million incremental business after Zeta Live. So could you provide some context around how that target compares to what you've achieved in prior years? And how you'd characterize the momentum coming out of Zeta Live relative to prior years? And then just lastly, how should we think about the conversion time line from that event into bookings and revenue? And is that already included in fiscal '26 guidance? David Steinberg: Thank you, Elizabeth. So first of all, last year, we closed about $57 million in business coming out of Zeta Live, which I think is one of the reasons we were able to grow 500 basis points greater through the year than we gave original guidance for thus far. This year, we're trying to get that to $100 million. I would tell you that as of today, the pipeline is already full enough to get us to that number, and we might see even more meaningful numbers than that. So as you know, we try to be consistent with our beat and raise methodology. We don't usually give guidance for the next year at the end of the third quarter. We felt because of the Marigold deal, it was important to make it clear that we were going to grow organically 20% again into next year from a top line perspective. I do think that Zeta Live will be a part of that, but I also think it's a part of the buffer that we continue to leave ourselves where we think we can continue to do better than that. To answer the momentum question, I would tell you my biggest challenge today, Elizabeth, is how do I top Zeta Live next year. It was just so incredibly well received. We had multiple clients just going crazy for Athena, and I just continue to see the most momentum I've ever seen coming out of any event we have ever hosted ever. It's a very exciting time for Zeta right now. Elizabeth Elliott: Great. And then just as a quick follow-up. On the LiveIntent piece, understanding it's a smaller portion of the business, but it looks like it was a little bit weaker in Q3 and in Q4 guidance. So wondering if there's any trends to kind of call out there on how that integration is going? Christopher Greiner: Yes. Thanks, Elizabeth. I'll take that. Look, in short, we're really happy with how LiveIntent is performing. We are accruing at 100% of their earn-out. I think if we were to do things over again, remember, we set that initial guidance skew for every quarter of 2025, about a month after we owned the asset. We've learned a lot since. I think we're also realizing a substantial amount of new product synergies that is flowing organically to the business. But overall, I couldn't be happier with how the integration has gone and the execution of the team. David Steinberg: And what you're not seeing in the numbers is all of the cross-sales from Zeta clients into their products and their products into ours. So we're -- I would tell you, Elizabeth, we think the LiveIntent deal was a grand slam home run, and we're looking forward to having a similar experience with Marigold. Operator: Our next question comes from the line of Matt Swanson with RBC. Matthew Swanson: David, we've seen the compounding value from an ARPU perspective when customers take multiple products. You talked about Athena and AI being the new UI. Can you just talk a little bit about how maybe that will help with the cross-sell and for people to see the full value of your platform? David Steinberg: Thank you, Matt. I would tell you that I think Athena will be amongst the single biggest drivers to the OneZeta methodology we've ever had. To point out, it is, of course, fully voice activated and fully conversational. So any client by the end of the first quarter should have this fully embedded into their platform. Not only will they be able to work through the existing use case they have, Athena will already be programmed to help them with secondary use case expansion from production level launch. By way of example, if a client is using us actively for acquisition, they'll literally be able to say to Athena, "Tell me which of my clients are most likely to churn and how do you recommend that we save them." That removal of the friction between the human and the platform is going to allow, I think, for an accelerated growth of OneZeta. Christopher Greiner: One point where that Matt shows up also in the metrics is one of the areas that as we were preparing post close that stood out to me is not only did each of our use cases grow double digits year-over-year, which has been consistent, but our 2 or more use case count grew over 100% year-over-year. So we're going into capabilities like Athena with really interesting go-to-market momentum. David Steinberg: Yes. And once again, with 100 global enterprises in Marigold that are all on one use case, we see that as a very unique opportunity for the specialty team we've set up under Ed See to get in there and focus on it. But I think that the integration and production capabilities of Athena are going to be really an accelerant to platform utilization. Matthew Swanson: That's really helpful. And then I'm sure the pipeline has a big -- a lot to do with this. But David, you mentioned that the '26 guide was a quarter early. So Chris, could you just kind of talk us through being one of the first people to give us an outlook into 2026? Just what's kind of building all the confidence and the visibility that you have? Christopher Greiner: Yes. We talked about at Investor Day, Matt, you'll recall that so much of our installed base not only has been with us 3-plus years, almost 60%, 5 or more years, but there's now a demonstrated history of there, on average, expanding their spend with us 15 points a year. So by starting our guide at 21% year-over-year, which, by the way, is consistent with really the last 2 years of where we started our guidance, we feel like we've left even some conservatism there. The pipeline says a lot. And then with more and more of our revenue under the curve from really strong signings throughout the year, it just -- it felt like today was the right time. Again, wanted to be clean with our organic baseline before we added Marigold. And I wouldn't want to overlook the really strong addition, not just to revenue, but how much of that revenue for 2026 out of the gate is flowing towards increasing adjusted EBITDA and free cash flow. In fact, this year, from our initial guide of revenue, which was around 21%, so we've obviously added to that since, but that translates to $35 million of revenue and $28 million of free cash flow that's been added to the guide since the beginning of the year as well. Operator: Our next question comes from the line of DJ Hynes with Canaccord Genuity. David Hynes: Congrats on a really nice quarter here. David, Chris, I want to ask how you're thinking about sales and marketing investment and capacity build-out there. I mean, obviously, the operating leverage is great to see, but sales and marketing actually went down sequentially. And you shared some really powerful pipeline statistics around the growth there and the strength coming out of Zeta Live. So I'm wondering how you're thinking about whether it's time to lean in on growth. I mean, obviously, I guess you're going to get some sales reps with Marigold. But any thoughts there, maybe kind of plan for 2026 would be helpful. David Steinberg: Yes. I mean it went down a little bit by accident. We didn't mean it to. Quite frankly, we're trying to hire every great salesperson we can possibly get, DJ. The challenge is that our existing sales reps have been so incredibly productive that we've been able to continue to grow at a much faster pace than we expected to while simultaneously trying to find more salespeople. We will pick up an incredible sales team with Marigold, both in the United States and Europe and EMEA. So it feels like we're sort of very well positioned for where we want to go, although -- once again, we did grow 28% top line, 43% EBITDA line -- I'm sorry, 46% don't want to screw us out of that last 3%, but 46% growth on EBITDA and 83% free cash flow growth, while simultaneously, DJ, making some of the largest investments we have ever made into our artificial intelligence and innovation. So feeling very good about where we are organizationally. Christopher Greiner: You'll see a pretty material tick up 3Q to 4Q with Zeta Live occurring in October versus September like last year. David Hynes: Yes. Yes. Okay. Makes sense. And then, Chris, while I have you, maybe can you talk about gross margins in the quarter? I mean, direct revenue mix held pretty stable at that 75%. We saw a little bit of degradation in gross margin. Just anything we should be thinking about there as we model the numbers going forward? Christopher Greiner: Yes, mix was up nicely year-over-year. But to your point, it was -- stayed at that higher end of our range, 75% quarter-to-quarter. What we wrestle with on occasion is mix within the mix. And frankly, this quarter, we had really strong display video channel usage. That display video channel usage is lower than what we average on our total direct revenue mix profile. But to give you a sense of just how much channel usage we're seeing, our greater than 4 cohorts, so those scaled customers using 4 or more channels was up 44% year-over-year and our greater than 5 or more channels is up over 60% year-to-year. So mix within the mix, but consistent with our model, our long-term model that each year, we want to get between 100 basis points and 300 basis points of efficiency on the cost of revenue line. Operator: Our next question comes from the line of Clark Wright with... Clark Wright: Awesome. It was great to see a strong quarter of organic growth. I was wondering if you could talk a little bit more about the contributions from the agency. You talked about 23 brands being added. How should we think about the growth of the agency business and independent agencies relative to the direct enterprise relationships as we head into 2026? Christopher Greiner: Yes. We break out our business in a lot of different ways and give you a lot of metrics. One of them we're going to keep to is, keep the disaggregation of revenue down to direct and integrated. But what I will point to is as a proxy for how healthy our agencies are growing. You would see the direct mix was up over 30% on a year-over-year revenue growth basis. And then mix within the agencies, let me just look at my notes here, was up pretty substantially as well from a direct perspective. Let me just get the exact data point here for you. Matt, if you have it. let's say, direct -- agency direct mix was up from 52% direct to almost 60% this quarter. David Steinberg: I mean direct to enterprise -- yes, I'm sorry, Clark, I was just going to say direct to enterprise continues to be the vast majority of our business, and I think will be for many years to come. But we love our agency clients, and we continue to expand with them very nicely. So it's been a really good blend to have both. Operator: Our next question comes from the line of Jason Kreyer. Jason Kreyer: All right. Great. So first on Athena. When you think about your 572 scale customers, are there specific groups or segments of that where you think Athena resonates better than others? David Steinberg: So Jason, I would start by saying I think our direct enterprise clients will probably adopt it in a more meaningful way first, which is not to say we don't think it really plays very well with the agency clients. From a vertical perspective, I don't really think it's going to be that differentiated. I think if you have not seen the demo yet, which was standing-room only, I say standing-room only, there were people sitting on the floor who physically asked me to move so they could see the demo. We have a recording of it on our Investor Relations site. But I would tell you that when you put that type of power in the hands of a client, they're going to really adopt it very, very quickly. And we're excited about that. Jason Kreyer: And just going back to the momentum topic. At the Investor Day, you had talked about 80% faster onboarding. There's some operational streamlining you've been doing. So you just hosted Zeta Live, biggest events for building the pipeline. I'm just curious, is there a scenario where that pipeline of potentially $100 million can transition to revenue at a faster pace than we've seen in the past? David Steinberg: Let me start by saying our goal is to close $100 million in business, not just get the pipeline to $100 million, Jason. So we're on the same page. When you look at the fact that we've given guidance early to next year, we've now raised the fourth quarter this year, it's our 17th quarter of raising in a row. We feel like we've got the wind at our back or we wouldn't be in a position to do both of those things. So I think that our confidence level is very, very high based on where the record pipeline is, what's coming out of Zeta Live. And yes, we are closing deals faster than we have in the past, and we are onboarding them substantially faster than we have in the past by automation and AI internally. Operator: Our next question comes from the line of Terry Tillman with Truist... Terrell Tillman: The first question is, I was just hoping to double-click on the replacement cycle opportunity. I think there was a stat that was provided at the Analyst Day about the last couple of quarters, the RFP activity had been up quite a bit. And I don't know if that's independent of the Zeta Live and the pipeline that you built out of that. But just maybe you could comment a little bit more around where we are in this replacement cycle opportunity and maybe Athena helps with that. And kind of related to that, and hopefully, this doesn't become a 5-part question is like maybe there's pricing and packaging and other things you could drive to kind of minimize the inertia for those folks to move to your platform? And then I have a follow-up. David Steinberg: Yes. So let me start by saying that the replacement cycle continues to be at full scale. And we are not just seeing more RFPs in our company's history. We are seeing the largest RFPs we have ever seen. And if you look at the legacy marketing clouds, the guys like Salesforce, Oracle, Adobe, one of them is leading the industry. The other 2 are legacy. They're great companies with legacy technology. We are the next generation of Marketing Cloud. And we're really focused on how do we continue to win in what is an even faster accelerating replacement cycle. As it relates to Zeta Live, we came -- we went in with a record pipeline. We came out with a meaningfully larger record pipeline. It's just -- right now, we are firing on 11 of 12 cylinders. I don't say 12 of 12 because I don't want to jinx us, but we're feeling very, very good about it. Terrell Tillman: That's great to hear. And I guess I won't ask for more cylinders past 12. Maybe that's for another conversation. But in terms of the independents, I think you added 3 last quarter. I was impressed at the Analyst Day, one of the -- your folks that was on stage was an independent, and it was pretty impressive their kind of passion for the platform. Maybe you could just give us an update on the independent side in terms of agencies. David Steinberg: Yes. So there -- it's growing very rapidly. And when you look at the different agencies that we're now platforming, even though we call them independent agencies, each one of them is representing between $1 billion and $2-plus billion a year in marketing revenue. So very excited about what's happening there, Terry. We've built out a sales force that's now solely focusing on independent agencies, and they are really, really rocking. I would tell you, we had -- I can't give you the count, but so many independent agencies attended Zeta Live, we had a separate breakout to spend time with them, and it seems to be going very, very well. Operator: Our next question comes from the line of Gabriela Borges with Goldman Sachs. Gabriela Borges: David, my question is on Athena and more specifically on the process for implementation and deployment within customer environments. David Steinberg: Yes. So Gabriela, I don't know if I lost you -- I'm sorry, I lost you for a second there. I heard the Athena and then you got into deployment? Gabriela Borges: Yes, the process of deployment and the learning curve on deterministic versus nondeterministic outcomes when you work with customers to deploy Athena. David Steinberg: So first of all, great question as usual. All of our deterministic -- all of our actions at Zeta are deterministic. So if you think about the Data Cloud, you've got the 242 million deterministic individuals in the United States, over 550 million globally. Athena is going to be built right into the Zeta Marketing Platform. So literally, anybody who's using the ZMP, which, as you know, has a common user interface for setup and a common user interface for reporting, will be able to use Athena seamlessly to activate and learn. It's almost like a data scientist and then an execution capability in one voice-enabled conversational platform. So everything that Athena does will be fully deterministic and will allow for deterministic attribution capabilities. Operator: Our next question comes from the line of Richard Baldry with ROTH Capital. Richard Baldry: Can you talk about sort of the architecture around Athena? And another thing about is, how easy or challenging would it be to extend that to cover new platforms? Obviously, something like Marigold would be a place to look at. David Steinberg: Yes. So I mean, Athena's architecture is fully internally built. We are partnering with OpenAI as it relates to the voice interface, and we're excited about that. As it relates to what we can layer it on top of, we can easily layer it on top of any platform that has an open API. And when you think about where we're trying to go long term, yes, Athena is native to the application layer at the Zeta Marketing Platform, but as we integrate other platforms, it can easily be layered on top initially through an API integration. And then as we fully integrate them into the platform long term, it will become native to their application layer as well. Richard Baldry: So last 2 for me. Does having Athena make you likely to be more acquisitive maybe as tuck-ins because you can bring it under that umbrella kind of easier? And then maybe for Chris, do you think long term or even short term about the buybacks as a percent of free cash flow? Where is your thinking lately on that? David Steinberg: So as it relates to being acquisitive, as you've heard me joke, Rich, we've been in business now for 17 years. We've bought 17 companies. It's highly probable that there'll be an 18th at some point. I don't know if Athena makes us more acquisitive, but it certainly becomes a bridge into anything we do going forward. And as we think about today, being the #1 marketing cloud using artificial intelligence and data native to the application layer, Athena gives us the opportunity to expand and increase our TAM and our addressable market by moving into other business intelligence and other opportunities. Chris -- As it relates to the buyback, Chris was sort of jumping on something for the second. We continue to focus on using greater than half of our free cash flow for retiring shares and repurchasing shares. Quite frankly, the only reason we didn't buy more over the last quarter was because once we signed the agreement to do Marigold before we announced it, we were an internal quiet period. We weren't able to buy stock back. So I believe we were in the mid-70s as a percentage of free cash flow for share repurchasing year-to-date. I could see us continuing at those. Christopher Greiner: We've done about 85% year-to-date. We have a lot of dry powder in the next 200 program. Richard Baldry: Sounds good. Congrats on a great quarter. Operator: Our next question comes from the line of Zach Cummins with B. Riley Securities. Zach Cummins: And congrats on a strong quarter. David, I thought it was notable to call out that you've seen some strong momentum in the telecom vertical. So just curious, what's going so well on that front in terms of building that momentum with telecom customers? And is a lot of that success really coming as a displacement for other solutions with these major customers? David Steinberg: Yes. I mean you've got a lot of different telecom players out there really, really struggling for growth. And our platform allows them to grow at an accelerated pace at a lower cost than our competitors' platform. So what I would tell you in almost all cases, we're displacing one of the major marketing clouds at this point. There's very few companies that are sort of doing this stuff internally. So we're very excited about telecom. It's growing at an accelerated pace, and it's something we think will continue. Chris? Christopher Greiner: Yes. A couple of other points, I think, Zach, that are relevant on the industry verticals. As you know, we report the industry verticals on a trailing 12-month basis, and this was the first quarter that telecom made it to be over 20%, but it's actually been growing really strongly in the last 2 quarters. So that was good to see. The 7 out of 10 growing over 20% is a marked improvement from the -- what's traditionally been 6 for us, obviously, telecom being that new entrant. But even those not growing at 20%, we're growing between 7% and 17%, which is great. But with so much focus in the investor community on what's happening in the macro, I think it's also worth highlighting that verticals that we've seen to be the most consumer discretionary, retail, travel and hospitality, even automotive have continued at their very strong growth rates. What we're seeing is even when there's difficult times out there, clients are moving to us in an accelerated pace because of our substantially better return on investment than most of our competitors. Zach Cummins: Understood. And a follow-up for Chris, just around the free cash flow conversion. It's nice to see the strong execution here in Q3 even despite the working capital headwinds. As we think about modeling out into future years, do you assume those working capital headwinds regarding collections with agencies will start to ease? Or how are you thinking about that as we move forward from here? Christopher Greiner: If you adjust, Zach, for the pure timing of the agency's longer payment cycles, we would have been again at 80% and better free cash flow conversion. And if I then go backwards to -- I should say, forwards to the Zeta 2030 conversion target of at least 70%, you could argue we've even built in for a continued headwind from the agencies and not needing that to be fully neutral for us to get to that at least 70%. Operator: Our next question comes from the line of Jackson Ader with KeyBanc... Jackson Ader: First one is on the, I guess, visibility into 2026. David, you mentioned, normally, we don't get this kind of forward guidance a quarter early. But I'm curious like is it more than just the pipeline? Do the large customers you're doing business with actually -- do they have commitments that give you more confidence or that the spend level is going to go up in the future that might not have existed in years passed? David Steinberg: Yes. Yes. We're seeing much larger contracts from our larger clients, and it's giving us far more visibility and comfort in the numbers. Jackson Ader: Right. So it's -- okay, pipeline bigger, but also visibility also bigger? David Steinberg: Yes, Jackson, to be specific, large clients are giving us larger contracts than we've ever had before and far more visibility into our forward numbers than we've had in the past. Christopher Greiner: And tactically, Jackson, this time of year, frankly, August, September, we're in our kind of next year planning process anyway, not just internally, but with our customers. So even though historically and what we would normally expect under absent a Marigold-type transaction giving guidance in February, a lot of that work is effectively already done. Jackson Ader: Got it. Okay. Okay. And then a quick follow-up. You mentioned the political candidate revenue expectations for last year. But curious whether you have any initial expectations for advocacy and how that works in that in the, call it, like the off-cycle election years? Christopher Greiner: It's followed, Jackson, a similar pattern as candidate spend, meaning if you go back to the midterms in 2022, where we had political candidate revenue of around $7.5 million. This year, we're planning for effectively double that. I would think along similar lines for advocacy from kind of midterm to midterm. The tricky part for that for us and why I specifically said in the prepared remarks, I think this number will evolve is those deals can come into the pipeline very rapidly, much faster or I should say, later in the process than what a typical enterprise or an agency deal would come in. So it tends to be something that happens on a quicker time line for us. So hence, why I think that number is going to continue to evolve. Operator: Our last question comes from the line of Koji Ikeda with Bank of America. Koji Ikeda: I wanted to ask a question on Marigold for 2026. And I know it hasn't closed yet, but really wanted to ask around -- because you've had such success in the past with acquisitions, I think about acquisitions where you guys -- for you guys with like more around 1 plus 1 equals more than 2. And so with your guys giving out a '26 guide out there, thank you very much for that. And previously, you've kind of given a guide for, I think, $190 million for Marigold for 2026. I mean, I guess where I'm going with this is that -- it sounds like just stacking $190 million on the $1.54 billion guide for 2026 could be understating the opportunity with Marigold. Of course, I don't want to get over my skis here, but just given your track record with acquisitions, it doesn't seem like that's out of the realm. David Steinberg: Yes. So let me start by saying we do not want to have the guidance combined for the two yet. The reason we put the organic guidance out was because the last time we did this with LiveIntent, half of the analysts added it, half did not, and it created a tremendous amount of confusion. So when we do close that deal, Koji, which we expect to do this year, we will 100% update what we believe it will do on top of the $1.54 billion. And I just wanted to get that out there. Second, we started this year at a 21% guide, and we're going to -- we're already at 26%. So we've added 500 basis points from where we expected to be at the beginning of the year. As you know, we've known you now for a very long time. For 17 quarters in a row, we've beaten our guidance and raised our guidance. Our goal is to be sitting here at the end of next year and saying we've done that 22x, right? So we are very good at M&A. We have our pillars. We believe that Marigold fits every one of our pillars, and we believe that it's going to create a really nice tailwind to the growth of the combined company, specifically around taking their 100 global enterprise clients and making them from one use case to multiple use cases. As you point out, we always want 1 plus 1 to equal 4. When you look at moving from a single use case to multiple use cases around the Zeta opportunity, those clients generate between 3 and 3.5x more revenue than clients that are just using one use case. So I do think that the Marigold acquisition will lead to a really nice tailwind into next year, if that makes sense. Koji Ikeda: Yes, totally does. And looking forward to that press release on the closing of Marigold, absolutely. And maybe just a follow-up for you, David. I did want to -- now that on the back of Zeta Live, I did want to ask how Zeta's brand image is evolving with your customer base? Maybe compare and contrast how customers are looking at Zeta today versus how they looked at you 3 years ago? David Steinberg: Well, I'm not even sure you could put the way they looked at us 3 years ago to the day in the same conversation. It is so advanced, Koji. What I would tell you is we started this journey and 3 years ago, we were at Zeta who, which really meant when we walked into a sales call, we would have to spend 50 minutes of the first hour explaining who we were and why we were in the room. Our goal was to get to why Zeta, meaning we know you're here. We know why you're here. Why should we pick you over your competitors? The next evolution really is Zeta now. I need Zeta, how do I get you into my stack? And the final is must-have Zeta. We're still a ways off from that. That's sort of like Microsoft. But what I would say is we are very solidly in the why Zeta. We get into the room and people know who we are. We are the advanced player in our space. We are looked at as cutting edge. We are looked at by marketers as a very important component of their tech stack, and they're really looking at us as a sort of game-changing company as it relates to AI data and their ability to deploy it organizationally. Operator: Ladies and gentlemen, there are no additional questions at this time. Thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.
Operator: Welcome to The Hackett Group Third Quarter Earnings Conference Call. [Operator Instructions] Please be advised the conference is being recorded. Hosting tonight's call are Mr. Ted Fernandez, Chairman and CEO; and Mr. Rob Ramirez, Chief Financial Officer. Mr. Ramirez, you may begin. Robert Ramirez: Good afternoon, everyone, and thank you for joining us to discuss The Hackett Group's third quarter results. Speaking on the call today and here to answer your questions are Ted Fernandez, Chairman and CEO of The Hackett Group; and myself, Rob Ramirez, Chief Financial Officer. A press announcement was released over the wires at 4:09 p.m. Eastern Time. For a copy of the release, please visit our website at www.thehackettgroup.com. . We will also place any additional financial or statistical data discussed on this call that is not contained in the release on the Investor Relations page of our website. Before we begin, I would like to remind you that in the following comments and in the Q&A session, we will be making statements about expected future results, which may be forward-looking statements for the purposes of the Federal Securities Laws. These statements relate to our current expectations, estimates and projections and are not a guarantee of future performance. They involve risks, uncertainties and assumptions that are difficult to predict and which may not be accurate. Actual results may vary. These forward-looking statements should be considered only in conjunction with the detailed information, particularly the risk factors contained in our SEC filings. At this point, I would like to turn it over to Ted. Ted Fernandez: Thank you, Rob, and welcome, everyone, to our Third Quarter Earnings Call. As we normally do, I will open up the call with some overview comments on the quarter. I will then turn it back over to Rob to comment on detailed operating results, cash flow as well as guidance. We will then review our market and with strategy-related comments, after which we will open it up for Q&A. This afternoon, we reported revenues before reimbursements of $72.2 million just below our quarterly guidance and adjusted earnings per share of $0.37, which was at the midpoint of our quarterly guidance, respectively. What is most promising about the quarter is the level of breakthrough innovation, which has resulted in the highly differentiated capabilities of our AI XPLR platform version 4. Specifically, the reactions from both clients and potential channel partners to our version for release, which we announced on September 8, has been extremely positive with one potential partner specifically referring to our version 4 capabilities as being game changing. Correspondingly, we continue to work closely with several global channel partners and expect to announce alliances that could significantly expand our growth opportunity. Our ability to identify, design and build Gen-AI solutions based on client-specific processes and enterprise application automation footprints in accelerated time is powerful. It is allowing us to position our platform as an Enterprise AI Center of Excellence must have capability, which accelerates and enhances any client's Gen-AI adoption effort. Our version 4 of AI XPLR capabilities is attracting new clients, and it is resulting in an increasing pipeline and new engagements in this increasingly important area. During the quarter, we launched our alliance with Celonis, a leading provider of process intelligence software that provides clients with critical operating insight. By teaming with Celonis we have now demonstrated that we are able to ingest their process intelligence insight into AI XPLR as well as ZBrain to help identify high ROI Agentic AI solutions with unmatched speed and detail. We are now finalizing a way for our clients to easily integrate the Celonis operating insight into AI XPLR that will allow us to promote a special ideation joint offering to all of our respective clients. The combination of AI plus PI or Process Intelligence will allow customers to quickly move from intention to action with measurable impact resulting in Agentic transformation initiatives. Our GSBT segment revenues were favorably impacted by the strong GenAI related revenue growth, which was offset by the expected weakness in our OneStream practice and the expiration of an IPaaS contract. Our IPaaS partner offered to redefine the agreement around an AI XPLR go-to-market partnership, which we rejected. We believe the current channel partner relationships we are considering will generate significantly greater value than what we were offered. Excluding the OneStream practice and IPaaS contract, our GSBT segment was up over 4%. Our Oracle Solutions segment was down as expected, although activity continues to be solid. Extended client decision-making has continued to make the revenue replacement of a large post-go-live engagement at the end of last year takes longer than we planned. This adversely impacted the second quarter and the third quarter, which is our peak Oracle prior year Q3 comparison, and we will -- and will continue to impact us into the fourth quarter. The result of this large client transition and our continued development of AI accelerator, our GenAI assisted technology implementation platform that allows us to deliver technology engagements more efficiently led to our decision to more aggressively reduce our head count to realize the expected GenAI productivity benefits and align with current requirements. Our SAP Solutions segment was up during the quarter as implementation revenues resulting from our increased software sales activity at the end of the quarter continued to ramp up. Although software sales in the quarter were lower than expected, we expect to make this back up with increased activity in the fourth quarter. Our new platform and implementation capabilities allow us to sell clients enterprise-wide from ideation to implementation in one fully integrated platform. It also provides a client with a single platform, which they can license to fully support their entire AI Center of Excellence initiatives. We continue to see Agentic transformation opportunities to emerge in many of our engagements as the need for GenAI capability and relevance continues to increase. These engagements also provide opportunities to certify strategically and more broadly. These capabilities should further expand through the new strategic alliances, which I said we expect to launch in the near future. That provides us with the increased opportunities to sell our unique capabilities in the upcoming year. On the executive advisory front, we continue to invest in our growing executive and vendor intelligence program. We launched the GenAI premium program. We have integrated our GenAI content into all of our executive programs and we also expanded our e-procurement intelligence capabilities with the acquisition of Spend Matters. On the balance sheet side, our ability to generate strong cash flow from operations has allowed us to maintain our dividend. And today, we are announcing a $40 million Dutch tender offer to acquire approximately 8% of the company's common stock. This tender offer should be strongly accretive and on a cash basis, the reduction of the dividend payment due to the buyback is expected to offset a meaningful portion of the net of tax interest expense that we expect to incur. With that said, let me ask Rob to provide details on our operating results, cash flow and also comment on outlook. I will make additional comments on strategy and market conditions following Rob's comments. Rob? Robert Ramirez: Thank you, Ted. As I typically do, I'll cover the following topics during this portion of the call. I'll cover an overview -- I'll provide an overview of our third quarter results, along with an overview of related key operating statistics. An overview of our cash flow activities during the quarter, and I'll then conclude with a discussion on our financial outlook for the fourth quarter of 2025. For purpose of this call, I'll comment separately regarding the revenues of our global S&BT segment, our Oracle Solutions segment, our SAP Solutions segment and the total company. Our global S&BT segment includes the results of our North America and international GenAI consulting implementation and licensing revenues, benchmarking and business transformation offerings, executive advisory, market intelligence and IPaaS programs and our OneStream and e-procurement implementation offerings. Our Oracle Solutions and our SAP Solutions segments include the results of our Oracle and SP offerings, respectively. Please note that we will be referencing both total revenues and revenue before reimbursements in our discussion. Reimbursable expenses are primarily project travel-related expenses passed through to our clients that have no associated impact on our profitability. During our call today, we will also reference certain non-GAAP financial measures, which we believe provide useful information to investors. Specifically, all references to adjusted financial measures will exclude reimbursable expenses, noncash stock-based compensation expense, all acquisition-related cash and noncash expenses, amortization of intangible assets and other nonrecurring items such as restructuring. We have included reconciliations of GAAP to non-GAAP financial measures in our press release filed earlier today, and we'll post any additional information based on the discussions from this call on the Investor Relations page of the company's website. For the third quarter of 2025, our total revenues before reimbursements were $72.2 million, a decrease of 7% over the prior year. The third quarter reimbursable expense ratio on revenues before reimbursements was 1.3% as compared to 1.6% in the prior quarter and 2.3% when compared to the same period in the prior year. Total revenues before reimbursements from our Global S&BT segment were $42.4 million for the third quarter of 2025, a decrease of 2% when compared to the same period in the prior year. Strong revenue growth from our GenAI consulting and implementation offerings in this segment was more than offset by weakness in our OneStream implementation offerings and the nonrenewal of a meaningful IPaaS contract during the third quarter. Excluding this decrease, our global S&BT segment would have been up 4%. GenAI momentum is expected to continue in Q4 and accelerate in 2026. Total revenues before reimbursements from our Oracle Solutions segment were $16.4 million for the third quarter of 2025, a decrease of 25% when compared to the same period in the prior year. This was higher than expected due to continued protracted decision-making. Total revenues before reimbursements from our SAP Solutions segment were $13.4 million for the third quarter of 2025, an increase of 4% when compared to the same period in the prior year. This increase was primarily driven by implementation services that correspond to the volume of software sales in the last several quarters. Although software sales activity was lower than we expected in Q3, we expect this activity to be up meaningfully on a sequential basis in Q4. Approximately 23% of our total company revenues before reimbursements consist of recurring multiyear and subscription-based revenues, which include our executive advisory, application managed services and GenAI license contracts. We are seeing the rapid migration of IPaaS to AI XPLR and ZBrain related recurring revenue opportunities. Total company adjusted cost of sales totaled $41.4 million or 57.4% of revenues before reimbursements in the third quarter of 2025 as compared to $44.2 million or 56.8% of revenues before reimbursements in the prior year. Total company consultant headcount was 1,317 at the end of the third quarter as compared to total company consultant headcount of 1,382 in the previous quarter and 1,262 at the end of the third quarter of 2024. The third quarter reduction in headcount was due to actions taken to reduce staff to be commensurate with current demand and the expected productivity improvements from the leverage of our GenAI delivery platforms. Total company adjusted gross margin on revenues before reimbursements was 42.6% in the third quarter of 2025 as compared to 43.2% in the prior year. Adjusted SG&A was $16.5 million or 22.9% of revenues before reimbursements in the third quarter of 2025. This compared to $17 million or 21.8% of revenues before reimbursements in the prior year. Adjusted EBITDA was $15.3 million or 21.2% of revenues before reimbursements in the third quarter of 2025 as compared to $17.7 million or 22.7% of revenues before reimbursements in the prior year. GAAP net income for the third quarter of 2025 totaled $2.5 million or diluted earnings per share of $0.09 as compared to GAAP net income of $8.6 million or diluted earnings per share of $0.31 in the third quarter of the previous year. Third quarter 2025 GAAP net income includes noncash stock compensation expense from our stock price reward program of $4.8 million or $0.17 per diluted share and acquisition-related cash and noncash compensation benefit of $2.1 million or $0.05 per diluted share. In addition, GAAP net income also includes a $3.1 million or $0.08 per diluted share restructuring expense for severance-related costs to reduce staff to be commensurate with current transition demand and expected productivity improvements from the leverage of our GenAI delivery platforms. Acquisition-related cash and noncash stock compensation items related to purchase consideration for the LeewayHertz acquisition. This consideration paid to the seller contains service vesting requirements and as such, is reflected as compensation expense or benefit under GAAP rather than purchase consideration. Adjusted net income and diluted earnings per share for the third quarter of 2025 totaled $10.2 million or adjusted diluted net income per common share of $0.37, which is at the midpoint of our earnings guidance range and compares to prior year adjusted diluted net income per share of $0.43. The company's cash balances were $13.9 million at the end of the third quarter as compared to $10.1 million at the end of the previous quarter. Net cash provided from operating activities in the quarter was [ $11.4 ] million, primarily driven by net income adjusted for noncash activity and a decrease in accounts receivable, partially offset by decreases in accrued expenses and contract liabilities. Our DSO or Day Sales Outstanding was 71 days at the end of the quarter as compared to 73 days in the previous quarter and 70 days in the prior year. During the quarter, we repurchased 1.1 million shares of the company's stock for an average of $20.70 per share at a total cost of approximately $22.9 million, including purchases from employees to satisfy income tax withholding triggered by the vesting of restricted shares. Our remaining stock repurchase authorization at the end of the quarter was $12.6 million. At its most recent meeting, subsequent to quarter end, the company's Board of Directors authorized a $40 million increase in the company's share repurchase authorization, bringing the available balance to $52.6 million in order to accommodate the Dutch tender offer announced today. Additionally, the Board declared the fourth quarter dividend of $0.12 per share for its shareholders of record on December 23, 2025, to be paid on January 9, 2026. During the quarter, the company borrowed $21 million from its credit facility. The balance of the company's total debt outstanding at the end of the third quarter was $44 million. Before I move to guidance for the fourth quarter of 2025, I would like to remind everyone of the seasonality of our business. Specifically, the increased holiday and vacation time that is historically taken in the fourth quarter will decrease our available billing days by approximately 8% to 10% when compared to the third quarter. Considering this, the company estimates total revenue before reimbursements for the fourth quarter of 2025 to be in the range of $69.5 million to $71 million. We expect global S&BT to be down as continued growth from GenAI revenues will be more than offset by other segment revenue declines. We expect Oracle Solutions segment revenue before reimbursements to be down by 15% when compared to the prior year. We expect SAP Solutions segment revenues before reimbursements to be down when compared to the prior year because of lower software sales activity given exceptionally strong software-related sales in the prior year. We estimate adjusted diluted net income per common share in the fourth quarter of 2025 to be in the range of $0.38 to $0.40, which assumes a GAAP effective tax rate on adjusted earnings of 24.5%. We expect the adjusted gross margin as a percentage of revenues before reimbursements to be approximately 46% to 47%. We expect adjusted SG&A and interest expense for the fourth quarter to be approximately $18.7 million. We expect fourth quarter adjusted EBITDA as a percentage of revenues before reimbursements to be in the range of approximately 22% to 23%. Now let me provide some details regarding our tender offer that Ted mentioned. The company announced today that its plan to launch a tender offer to purchase up to $40 million in value of its common stock at a price not less than $18.30 nor more than $21 per share. We expect to launch the tender offer tomorrow, which would mean it would expire on December 4, 2025. We plan to conduct a tender offer through a procedure commonly called a modified Dutch auction. This procedure allows stockholders to select the price within the specified range set by the company at which stockholders are willing to sell their shares. Neither management nor our Board members will be participating in this Dutch. The company will select the single lowest purchase price within the range that will allow the company to purchase $40 million in value of shares at such price based on the number of shares tendered. All shares purchased in the tender offer will be purchased at the same price. The tender offer will only be made pursuant to the offer to purchase, the related letter of transmittal and the other tender offer materials, which the company will file tomorrow with the SEC. Any specific questions should be addressed directly with the dealer manager or the information agent for the tender offer. The contact information will be included in the press release we will issue tomorrow announcing the tender offer and in the tender offer materials being filed with the SEC tomorrow as well. We will utilize our existing credit facility for the purchase of the shares in the tender offer and the fees associated with this offer. Lastly, we expect cash flow from operations to be up strongly on a sequential basis. At this point, I'd like to turn it back over to Ted to review our market outlook and strategic priorities for the coming months. Ted Fernandez: Thank you, Rob. As we look forward, let me share our thoughts on the near- and long-term demand environment and the growth opportunity it offers our organization. Although demand for digital transformation remains strong in traditional areas, it continues to be impacted by the thoughtful decision-making as organizations assess competing priorities due to economic concerns as well as the consideration of emerging GenAI technologies. The unlimited potential of GenAI will define an entirely new level of world-class performance standards driving all software and services providers to extend the value of their existing offerings with the introduction of Agentic AI capability. We believe this will result in unprecedented innovations, which all organizations will have to consider. This shift is consistent with our aggressive pivot to GenAI-enabled transformation, which we believe creates a unique value creation opportunity for our organization. We believe Agentic Enterprise transformation is a generational opportunity, which will fundamentally change the way companies operate as well as the way consulting services are sold and delivered. Our GenAI platform capabilities in the recently released version 4 of AI XPLR leverages our proprietary solution language model, which, by the way, has a patent pending and Hackett process and performance IP, which significantly accelerates the speed in which we can identify and design Agentic AI solutions. Another critical distinction of our new version 4 is the way we can design the Agentic solutions while considering the client-specific enterprise application automation footprint. This allows the client to consider where existing automation supports GenAI enablement, allowing them to fully leverage the existing automation footprint where possible. This ability to evaluate and consider a client's current technology landscape to deploy Agentic solutions further differentiates our AI XPLR capabilities. We are clearly now at a point where AI XPLR will become a fully licensable platform, which provides several modular options to our clients. This is critical to our multiyear ARR growth vision. The LeewayHertz acquisition also included a sophisticated GenAI orchestration platform, ZBrain, which we agreed to contribute into a joint venture with the founder. The JV will bring together AI XPLR and ZBrain platforms and will focus on licensing the platforms and creating what we believe will be a first-of-a-kind GenAI ideation through implementation Software-as-a-Service offering. We believe this JV creates an entirely new value creation opportunity for our shareholders that should result from growth of ARR or annual recurring licensing revenues. It would also allow the JV to have the opportunity to raise capital and achieve stand-alone valuations due to the GenAI software focus if that is deemed best. Another critical investment that we have made is to build our own GenAI-assisted knowledge-based solution called at Hackett AI. At Hackett AI leverages our proprietary Hackett benchmarking, executive advisory and business transformation intelligence which allows us to define and enable digital world-class performance for our clients. Our IP will also be increasingly leveraged across all of our market-facing and service delivery platforms. We expect the integration of our valuable IP and content that leverages GenAI to significantly enhance and accelerate the delivery of our insight that we are asked to provide clients every day. We are ingesting and indexing all of our proprietary IP, including benchmarking best practices, transformation and research IP to support the myriad of queries that are required to support our executive advisory and consulting clients and associates. We have also embarked on a new initiative called Accelerator, which intends to also address the efficiency and quality of the delivery of our technology implementation-related services. All these initiatives are harnessing the power of GenAI to improve and accelerate the delivery of our solutions and services with the intent of differentiating our capabilities and will result in improved revenue growth margins. We see potential commercial value for these innovations beyond our internal use. Also in the works, Transformation XPLR, which will support all of our management consultants, and we are looking at special modules in data and governance, which we believe will also further support and differentiate the current AI XPLR capabilities. On the talent side, competition from experienced executives with high technology agility continues. Overall, turnovers continued at acceptable levels during the quarter, and we expect that trend to continue. Lastly, even though we believe we have the client base and offerings to grow our business, we continue to look for acquisitions and alliances that strategically leverage our IP, platforms and transformation expertise and can add scope, scale and capability, which accelerate our growth. It's important to say that those kinds of acquisitions are not easily available. As always, let me close by congratulating our associates on our innovation and performance and thanking them for their tireless efforts and always urge them to stay highly focused on our clients and our people no matter what challenges we may encounter. Those conclude my comments. Let me turn it over to our operator, and let us move on to the Q&A section of our call. Operator? Operator: [Operator Instructions] Our first question comes from George Sutton with Craig-Hallum. George Sutton: Ted, you mentioned a plan -- you plan to announce alliances that could significantly change your opportunities. And you've been -- I know having discussions for the last couple of quarters. I believe the range has been SIs and large software companies. Can you give us a sense of what's practical for us to assume in terms of what you think you can accomplish and when. . Ted Fernandez: Excellent question, George. Look, George, our ability to achieve that has significantly increased with the release of version 4. I can't overemphasize what a significant, I'll call it, leap in capability version 4 has resulted in the reaction from both prospective clients and prospective channel partners. So as you know, yes, we started -- we had initial conversations with an enterprise software company toward the tail end of Q2. Those conversations moved to companies like Celonis, also an enterprise application company, which resulted in their alliances. Then we walked away from an offer with one of the large SIs that just we believe there were opportunities with others that would be just significantly greater value. We're currently in conversations with 2. We have every expectation that there is a strong desire on both parts to reach an agreement that's meaningful to both sides. I can also tell you that the enterprise application opportunity that surfaced late in Q2, which I somewhat have put set aside as the -- again, we had to do one thing. We stopped the licensing procedure to complete the licensing procedure for version 3 as Q2 was finishing. We worked our tails off to make sure that the innovation that we targeted for version 4 was achieved. We launched that on September 8. We think that the capabilities are significant and are being clearly acknowledged by these potential partners. What if I told you that before I got on the poll today, I had a request from one of the big 4 asking if our platforms were also available to purchase or license. So I believe that the capability that we're demonstrating when we get in front of clients is becoming more visible. I believe that it helps that these large partners are participating in a process, putting us through this to demonstrate proof points to demonstrate the capabilities of our platforms. That has also expanded, I'll call it, visibility to our capabilities. So yes, we remain confident that we will be able to attract 1 or 2 major alliance partners in the near future. George Sutton: Got you. On the software side, you mentioned that you had signed some new business, and you should be able to make up some of the weakness in Q4. Can you just walk through that a little bit. Ted Fernandez: Look, there is no doubt -- again, I'll go back. The impact of version 4 and our ability now to move clients more aggressively has accelerated since we introduced that on September 8. Client engagement has improved. Pipeline activity has improved and the engagement that we see now considering I'll call it, meaningful kind of engagement with AI XPLR as potentially picking up a significant level of responsibility for a client's AI Center of Excellence. All of those things is what's increasing our engagements and pipeline into Q4 around GenAI. We think that will continue to happen naturally. And yes, we want the acceleration from 1 or 2 or the right channel partners that would then really allow us to then dramatically improve our visibility and access to the largest GenAI opportunity. So it's all of the above, George. It's all of the above. George Sutton: Okay. Last question for me. Just on the Dutch auction, I'm just curious why a Dutch auction and why do a Dutch auction now? Ted Fernandez: Well, we had that question asked by some of our shareholders at the end of Q2, actually. And I didn't want to miss the opportunity to be able to acquire stock during what we knew was a more volatile Q3, given the guidance that we have provided, and understanding what that looked like. Now that we got through the end of the quarter, then I had the same question, do we continue to buy back our stock aggressively in the open market? And we thought the best way to start doing that was to tender for $40 million and provide the range that was articulated today so that we could be even more aggressive than we were in Q3. As you know, we've got a pristine balance sheet. We've rarely used it. We believe that the debt post this Dutch and the aggressive cash flow generation we normally didn't anticipate in Q4, will have us somewhere around 1x EBITDA by the time this whole process is over. And we know that's, that's virtually no leverage. So if we continue to believe our prospects are what they are, we will continue to be aggressive with our buybacks. Operator: [Operator Instructions] I would now like to introduce Jeff Martin with ROTH Capital Markets. Jeff Martin: Ted, could you give us an update on where you are with licensing progress so far with both ZBrain and XPLR. I mean, obviously, XPLR version 4 being launched in September, likely not a ton of traction there yet, but maybe give us some perspective on those clients that were potentially looking at licensing version 3, propensity to license version 4 in the next 6 months or so? Ted Fernandez: So as I mentioned in our comments, we were ready to have version 3 and fully licensable form for early in the third quarter. Once we saw the potential enhancements that were coming from version 4, we stopped all that licensing effort. It doesn't mean we didn't -- we don't have a lot accomplished, but -- we've completed version 4. We're still making some enhancements, but we expect to license -- start licensing XPLR sometime late into Q4, no later than the beginning of Q1. And we expect that many of the opportunities that we're currently fielding or responding to will become AI XPLR licensees. Jeff Martin: And on the ZBrain side . Ted Fernandez: On the ZBrain side, since the ZBrain side is differentiated to AI XPLR, yes, we would expect a portion, I don't know if it's half or 1/3 of the AI XPLR led licenses to incorporate ZBrain as well. Jeff Martin: Okay. And then I was just curious if you could break down S&BT a little more. You did mention it grew 4%, excluding OneStream and the IPaaS contract termination. But could you help us get a sense of the trends within the pieces of S&BT. Ted Fernandez: I mean, look, the largest piece of S&BT is our Strategy and Business Transformation Group. So these are the teams that do large transformation initiatives. So that represents -- I'm going to go, I don't know. Clearly, more than half in GSBT, then you also have our executive advisory business, which includes our executive advisory programs as well as the market intelligence programs. We also have our benchmarking services in there. And it does include the OneStream practice, the licensing, which we had in IPaaS, and now it includes all of the GenAI-related revenues. That business, I don't know, Rob will have to correct me, but represents more than half -- represented more than half of our revenues in the quarter. It represented nearly probably short of this, 2/3 of our operating profit, we believe that, that business by the end of '26 will probably drive over 75% of our total operating profits with GenAI, I'll call it, lead Agentic transformation or GenAI transformation initiatives, which include both GenAI, but also you have to deal with the existing clients if you call them, the existing business process and enterprise applications that also need to be transitioned when you're deploying Agenda workflows. So we expect that halo effect, probably the best way to say it. We expect that the majority of our Strategy and Business Transformation business, executives will end up leading GenAI initiatives and we expect once the GenAI initiatives become more mature, you will also see halo effect back into these traditional transformation initiatives, which require you to fully implement the changes. So right now, we're in the ideation and solutioning, ideation, design and solutioning portion of these GenAI engagements. As those engagements mature, they will create a halo effect to the largest portion of GSBT. That's why we always kind of look and say, GSBT, sometime in the future will drive a greater portion of our total profit. Hopefully, it also comes with more recurring revenue, which will result in higher gross margins and will be a substantial portion of our total value creation, if you look a year out or 2 years out. Jeff Martin: One other question. With respect to decision making, are you seeing any jamming of the logs there, is it getting a little better? Is it getting a little worse, the same? Just kind of some directional trend would be helpful. Ted Fernandez: What I can say is clearly better as clients making a '26 commitment, but our clients protecting '25 spend since economic volatility and some of the tariff distractions ended up creating a more difficult 25 years. So I'm going to say economic volatility, tariff distraction, and to some extent, people pausing to decide the impact of GenAI on their total IT and related initiatives are impacting it. But at the same time, do I see clients clearly positioning for an Agentic enterprise in an Agentic transformation world, which brings all I'll call, new and existing capabilities that will have to be transformed or better said, yes, but is it really changing? No. We expected it to be tough through the end of the year. I see people protecting ''25 earnings for obvious reasons. And -- but I see an increasing level of activity with people wanting to aggressively invest and expand on both, I call it, traditional digital transformation as well as digital transformation that have a meaningful GenAI component. We believe that meaningful GenAI component will increase throughout 2026. Operator: Our next question comes from Vincent Colicchio with Barrington Research. Vincent Colicchio: Ted, do you currently have the labor resources in GSBT to meet current AI demand? And do you have any concerns about that? Ted Fernandez: Not at all, especially with the productivity improvements of our Accelerator and transformation XPLR products. I mean, Vince, what you've got to understand is that the work that we have done traditionally and will do going forward, will be increasingly done by platforms that allow you to do that, delivering more value to -- allowing it to be more compelling and complete for clients in reduced time frames. So growth will be less determined by head count growth, and it will be a combination of sophisticated platforms that bring talented professionals to bear to help clients identify opportunities, design opportunities and build and deploy those opportunities. So no, I don't believe that head count is an issue for the balance of the year as we start 2026. If it had been, we wouldn't have taken the reduction that we did with our restructuring charge in the current quarter. Vincent Colicchio: And circling back on version 4, just what is it that's game changing versus the other alternatives in the market? Is it the speed? Or is it more than that? Ted Fernandez: No, it's much more than that. First what we had built in version 3, that's still very compelling that we walk into a client in any area of the business across 26 industries and we can walk into a client and say, we have the ability to simulate and we have fully detailed thousands of AI solution opportunities for clients. So we start with this very strong simulation capability that we have built in version 3. What really changed from version to version 4 on that was that our ability to inform the actual capability client's capability from its existing technology or automation footprint we got really, really good at driving that -- the way we inform that automation information down to process or, in some cases, subprocess level, by capturing that client's automation, existing automation footprint. So that single step resulted in much more powerful ideation capabilities and that not only impacted our ability to get in front of a client and say, before I recommend something significant to you. I want to make sure that as I do that, we want you to know that we fully considered your automation footprint. That capability did not exist in version 3, and it didn't exist at the level we've been able to take it down the process at subprocess level. So that was very, very meaningful. That also really opened up our ability to really gain more information around the data sources that we were going to be dealing with, both from the existing client technology footprint and our ability then to consider additional data sources to then improve clients, call it, data sources and knowledge base to make the solutions that we are recommending smarter, more compelling, so that was kind of also a meaningful step between version 3 and version 4. And then the star of the show is that -- we were able to take solutions that we have been delivering. This is not only detailing the to-be process of a solution that was going to be significantly influenced by Agentic workflow and that integration of both, but our ability to now identify those enhancements and that to be processed, be able to integrate the agents and explain the role of the agents in those changes and do it at the level of detail that we're currently delivering was more significant than version 3, but we were doing the version 3 work primarily, I'll call it, through hours through deployed expertise and what really happened is that our Hackett solution language model has just gotten so sophisticated that we were able to take something that was happening over a 4 to 6-week period with numbers of professionals and do that now in what we just find as an 80% solution in less than an hour, the proposed solution, which then allows us then front and engage the client on validating the output so that we can get really detailed, really specific so that recommendation of both complexity, the details required, the benefit that you're going to deliver that we then carry into POC. It's just been dramatically improved I think once we were able to get those capabilities in front of our clients, the way we have post call mid-September when we were able to do -- show this to potential partners and have partners literally say, so what do you need? And we say, give us this information and allow us a couple of days to come back to you with detailed recommendations in an area that they were, I'll call it, for whatever reason, evaluating in one of their current clients or in a future contract in our ability, and that's what we're currently doing with them. What we're doing right now are proof points by taking specific live situations and demonstrating that the capability of XPLR of version 4 is actually distinctly better, more detailed, more accurate, which allows for a better estimation of effort of determining complexity so that when you align benefits to those costs, the ROI is significantly improved. That capability is what's allowing us to now impact either a new client and say, let us show you how different it is. And now these channel partners, let us show you how different it can be and they'll literally say, well, we have one. We were working through one on a very significant client prospect for one of the clients, and they gave us this high-level information said, can you give us this information of specifically the process you're targeting, the information you have around that targeted process. And they said to us -- so look, when am I going to be able to see this? Am I going to be able to see this in a month or what? And I said, call us back in 2 days and we literally get that and use our 2 days then to validate what XPLR is creating. And it's just -- it's just really, really impressing them. And yes, to the point where one of them simply said, this is game changing. And we hope they really mean it. We hope they become a great partner with us and as soon as possible. Vincent Colicchio: Appreciate all the color. Ted Fernandez: I think it's important because we -- the future of the firm depends on unique capability, which is enhanced by very talented people, but without the unique platform capabilities and improving that solutioning language model and informing that solutioning language model with all of the Hackett IP that we have all the way down the process and subprocess level, including benchmark. I think it's hard to replicate. I may wake up tomorrow and somebody say, Ted, I've got something dramatically better. Right now, these sophisticated clients and the sophisticated channel partners are saying -- we have not seen anything that produces the outcomes that you're currently providing to us as part of our, if you call it, proof points. Operator: At this time, I show no further questions. I would now turn the call back over to Mr. Fernandez. Ted Fernandez: Thank you, operator. Let me thank everyone for participating in our third quarter earnings call, and we look forward to updating you again when we report the fourth quarter and our total annual results. Thank you again. . Operator: Thank you for your participation. Participants, you may disconnect at this time.
Operator: " Jennifer Hutcheson: " Colin Reed: " Mark Fioravanti: " Cooper Clark: " Wells Fargo Securities, LLC, Research Division Aryeh Klein: " BMO Capital Markets Equity Research Patrick Chaffin: " Bennett Rose: " Citigroup Inc., Research Division Charles Scholes: " Truist Securities, Inc., Research Division Daniel Politzer: " JPMorgan Chase & Co, Research Division Duane Pfennigwerth: " Evercore ISI Institutional Equities, Research Division Chris Woronka: " Deutsche Bank AG, Research Division David Katz: " Jefferies LLC, Research Division Jay Kornnerbreg: " Cantor Fitzgerald Chris Darling: " Green Street Advisors, LLC, Research Division John DeCree: " CBRE Securities, LLC, Research Division Operator: Welcome to Ryman Hospitality Properties' Third Quarter 2025 Earnings Conference Call. Hosting the call today from Ryman Hospitality Properties are Mr. Colin Reed, Executive Chairman; Mr. Mark Fioravanti, President and Chief Executive Officer; Ms. Jennifer Hutcheson, Chief Financial Officer; Mr. Patrick Chaffin, Chief Operating Officer; and Mr. Patrick Moore, Chief Executive Officer, Opry Entertainment Group. This call will be available for digital replay. The number is (800) 839-3516 with no conference ID required. [Operator Instructions] It is now my pleasure to turn the floor over to Ms. Jennifer Hutchison. Ma'am, you may begin. Jennifer Hutcheson: Good morning. Thank you for joining us today. This call may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, including statements about the company's expected financial performance. Any statements we make today that are not statements of historical facts may be deemed to be forward-looking statements. Words such as believes or expects are intended to identify these statements, which may be affected by many factors, including those listed in the company's SEC filings and in today's release. The company's actual results may differ materially from the results we discuss or project today. We will not update any forward-looking statements, whether as a result of new information, future events, or any other reason. We will also discuss non-GAAP financial measures today. We reconcile each non-GAAP measure to the most comparable GAAP measure in the exhibit to today's release. I'll now turn the call over to Colin. Colin Reed: Thank you, Jen. Good morning, everyone, and thanks for joining us today. We're pleased to report third-quarter results in line with our expectations in what continues to be a somewhat volatile operating landscape. On the hotel side of our business, our group business actualized a bit better than we had anticipated, with a stronger short-term pickup in corporate group meetings. In addition, the leisure hotel market in Nashville improved as the quarter progressed. And in September, transient ADR growth for the upscale and luxury hotel segment turned positive for the first time since February of '25. Overall, our same-store hospitality portfolio meaningfully outperformed the industry in the third quarter, achieving a RevPAR and total RevPAR index relative to our Marriott-defined competitive set of approximately 141% and 195% of fair share. In our entertainment business, our recent investments in Category 10 and Block 21 continue to perform well, while some of our downtown Nashville venues saw some impact from the surge in new bar and restaurant openings on Lard Roadway. Similar to what we're seeing in the hotel market right now, the rising popularity of country music and Nashville as a destination has attracted new live entertainment supply into the market. Despite this near-term period of absorption, we continue to be extremely bullish on the long-term trajectory of Nashville. Progress on the new Derm Titan Stadium and the East Bank development continues. Construction on Oracle's new headquarters there is expected to begin soon, following recent approvals by the Metro Council. Soil testing on the initial launch site of the boring Company's Music City loop has commenced. And just last week, the Airport Authority outlined more details for the demolition of the current Concourse A and rebuilding of a new 16-gate terminal. Today, with Concourse A out of commission, Nashville has 54 gates in operation and enough capacity to accommodate about 28 million travelers. When the new concourse opens in, I think it's early 2029, Nashville Airport will be able to accommodate up to 40 million travelers. These long-term demand drivers are arguably some of the strongest amongst large cities in this country. And our iconic portfolio of brands is well-positioned to continue to induce and capture more of our fair share of incremental demand. From a brand perspective, the third quarter was a major milestone for our entertainment business. The Opry traveled to the Royal Abbott Hall in London for its first-ever international performance, which was also broadcast on BBC2 in the U.K. The show garnered over 1.2 billion media impressions, and the broadcast was BBC2's highest-rated program of the day. As an aside, the former Chair of the Royal Albert Hall Board told us that in all of his years, he's never seen an audience so engaged at a performance like he did at the Opry Show; folks were bouncing in the aisles at the Royal Albert Hall. That's never normally done. The music that has made Nashville Music City is becoming so incredibly popular across Northern Europe. Now, to give you some idea of what's going on in this incredible feeder market, a couple of weeks ago, our business partner, friend, and country music superstar, Luke Combs, announced a series of stadium dates for next year across Europe. And here's an illustration of why I say this genre is exploding in this region. He announced 2 nights at Wembley Stadium and an 85,000-seated stadium; both nights sold out. And now they've announced the third date. The stadium in Glasgow, again sold out. And Slane Castle, look it up, an incredible festival site north of Dublin, catering to about 80,000, again sold out, and they've now arranged a second date. And what Luke told me was that there's only ever been one band that has played 2 consecutive nights at Slane Castle, and that was U2. This is extraordinary stuff, creating Pilgrims who will make their way to Nashville and to our businesses. As we had anticipated, through the investment we're making behind Opry 100, the brand is reaching far more fans than ever before. And we are continuing to expand the platform. A couple of weeks ago, we, together with Luke, announced a second Category 10 development in the heart of the Las Vegas Strip. Construction is already underway. And once open in the fourth quarter of '26, it will be 1 of only 2 country music live entertainment venues with Frontage on the Strip, the other being, of course, Old Red, which has performed incredibly well since opening early last year. As we look ahead, our businesses are in great shape. The amount of group business we have on the books remains healthy, and we continue to generate good returns on the investment we're making in our hotel portfolio. Our expanded entertainment platform contains more avenues for growth than ever before, and we look forward to building on the momentum of the Opry brand and Country Music more broadly in the years to come. As always, we appreciate your interest and support. And with that, let me turn over to Mark to discuss the quarter, our positioning in more detail. Mark? Mark Fioravanti: Thanks, Colin, and good morning, everyone. I'll review our third-quarter results and also provide some color on how we're thinking about 2026. I'll start with our hospitality business. Our same-store hospitality segment delivered results towards the high end of our expectations due primarily to short-term corporate group pickup in the quarter for the quarter. As a result, the year-over-year group mix shift was not as significant as we had anticipated, with corporate group room nights down only about 20,000 room nights from last year, about half the magnitude we saw in the second quarter. With the decline in corporate group rooms, banquet and AV revenue declined approximately $14 million, but as has been the case all year, contribution per group room night, a proxy for catering spend per group guest, continues to exceed our expectations, so groups continue to spend at healthy levels. Food and beverage outlet performance was a bright spot in the quarter, driven by a combination of higher leisure demand, better-than-anticipated corporate group volumes, and our recent capital investments. Outlet sales per occupied room increased nearly 13% and performance was particularly strong at Gaylord National, Gaylord Rockies, and Gaylord Palms, where we've made significant investments in recent years, both in the quality of the offerings as well as our capacities. In fact, total revenue for Gaylord National and Gaylord Rockies was a third-quarter record. And for Gaylord Rockies, the second-best total revenue quarter of all time, behind the second quarter of 2025. Our leisure business was another bright spot in the quarter, including at Gaylord Opryland. Leisure room nights at Opryland increased more than 5% compared to last year, and leisure ADR, while still modestly lower year-over-year, actualized a few percentage points better than our expectations as of last quarter. Finally, the JW Marriott Desert Ridge delivered third-quarter results right in line with our expectations. The existing meeting space renovations wrapped up at the end of September, bringing the multiyear comprehensive property refresh that was initiated by the prior owner to a conclusion. As a value creation opportunity post acquisition, we have begun the work to convert 5,000 square feet of existing vacant office space into sellable carpeted breakout meeting space. As we learn more about this property, we continue to be very bullish on its long-term potential under our ownership. Looking ahead to the fourth quarter and the next couple of years, we're pleased with the amount of business we have on the books. Same-store group rooms revenue on the books for the fourth quarter is comparable to the same time last year, and early ticket sales for our holiday programming are pacing ahead of the same time last year. Despite some of the macroeconomic uncertainty in government policy weighing on the broader lodging industry, the visibility we have into our group business for 2026 and beyond continues to be encouraging. We're continuing to book more room nights at higher room rates. In the third quarter, same-store gross group room nights booked for all future years were up 9% compared to last year, bringing room nights on the books for all future years to a third-quarter all-time high. The ADR on those bookings was also an all-time high, up nearly 3% year-over-year. Our group pace for 2026 and 2027 remains healthy. As of the end of September, same-store group rooms revenue on the books for '26 and '27 were up approximately 8% and 7%, respectively, compared to the same time last year for '25 and '26, with ADR growth continuing to pace in the mid-single digits, while the number of new leads and late-stage opportunities remain at near record levels. Certainly, we've seen elevated cancellation activity this year due primarily to the government sector, but we've also responded with strong in-the-year-for-the-year bookings production and disciplined margin management while continuing to pursue long-term value creation through enhancements and additions to the portfolio. Turning now to our Entertainment business. OEG delivered third-quarter revenue of approximately $92 million and adjusted EBITDAre of approximately $25 million. Growth from Category 10 and Block 21 behind our recent investments was partially offset by softer volumes at our downtown Nashville venues as the local live entertainment industry absorbs the cumulative impact of recent new supply. As a result, and as Jennifer will review in a minute, we've narrowed our range of expectations for full-year adjusted EBITDAre in our entertainment business with a new midpoint of $112 million, which represents approximately 6% growth year-over-year and approximately 12% annualized growth since 2019. Before I turn it over to Jennifer, let me also provide some color on some of the building blocks for 2026, with the caveat that we're still working through the budgeting process with Marriott and expect to provide formal guidance when we report fourth quarter results in February. From a macro perspective, we are optimistic we'll see an increase in group demand given expectations for lower interest rates and a more favorable business and regulatory environment. However, even if the current uncertainty persists, we still expect our business model to outperform others in our sector and the broader group industry. As I mentioned earlier, the group rooms revenue we have on the books for 2026 for the same-store hospitality segment is pacing approximately 8% ahead compared to the same time last year for 2025. From a mix perspective, corporate group bookings are pacing ahead of association group bookings. Should this trend continue, we would expect it to be a modest tailwind for group outside-the-room spending levels in 2026. On the cost side, recall that the collective bargaining agreement for the Gaylord National became effective in November of 2024, so we will lap the initial wage and benefit increases in the fourth quarter of this year. Regarding capital, we anticipate that the sports bar development at Gaylord Opryland will open in April of 2026, and the Texas rooms renovation will finish sometime in the second quarter. We also expect the meeting space conversion at the JW Marriott Desert Ridge to come online in the second quarter. The ongoing meeting space expansion at Opryland will continue through 2027, and we expect to kick off a room renovation at the JW Marriott Hill Country beginning in April 2026. And finally, on entertainment, we expect our 2025 investments behind Opry 100 and the new amphitheater addition to our portfolio to be a modest tailwind to growth in 2026. As Colin mentioned, Category 10 Las Vegas will be under development for much of the year, opening sometime in the fourth quarter of 2026 with full-year contribution in 2027. As with all our ROI projects, we expect to generate at least mid-teens unlevered IRRs on the estimated project cost of approximately $35 million. We look forward to providing more details on how we expect the year to shape up on our fourth quarter call in February. And now I'll turn it over to Jennifer to run you through our guidance revisions and review our financial position. Jennifer Hutcheson: Thanks, Mark. Regarding our outlook for the full year 2025, we are narrowing our guidance ranges now that much of the year is behind us. And in our Entertainment segment, we are lowering the top end of our guidance range for adjusted EBITDAre to reflect softer volumes in our downtown Nashville venues related to new supply in the market. On a consolidated basis, we now expect adjusted EBITDAre in the range of $772 million to $802 million, AFFO in the range of $509.5 million to $538 million, and AFFO per fully diluted share in the range of $8 to $8.38. Turning to our balance sheet. We ended the third quarter with $483 million of unrestricted cash on hand and our revolving credit facilities undrawn. Total available liquidity was nearly $1.3 billion. We retained an additional $33 million of restricted cash available for FF&E and other maintenance projects. At the end of the quarter, our pro forma net leverage ratio based on total consolidated net debt to adjusted EBITDAre, assuming a full year contribution of adjusted EBITDAre from the JW Marriott Desert Ridge, was 4.4x. Finally, let me comment on our anticipated major cash outflows for the year. Regarding our outlook for capital expenditures in 2025, we are narrowing the range of our expectations to $375 million to $425 million based on our latest construction timelines for projects currently underway. As we mentioned in our earnings release, these estimates include modest investments at the JW Marriott Desert Ridge, accelerated material purchasing for the planned 2026 rooms renovation at the JW Marriott Hill Country, and initial project costs for the development of Category 10 Las Vegas. Regarding our dividend, it remains our intention to continue to pay a minimum of 100% of our REIT taxable income through dividends. And with that, Mickey, let's open it up for questions. Operator: [Operator Instructions] We'll take our first question from Cooper Clark with Wells Fargo. Cooper Clark: Curious if you could provide us with updated thoughts on the entertainment market in Nashville, acknowledge that drove the guidance reduction in the quarter. Just curious how you're thinking about that business over the next couple of years, as it seems like supply headwinds are persistent. Colin Reed: Should I start, Patrick? Yes. This is Colin Reed. So the issues that we saw within this city over the period of time, February of this year through June, were that the more budget-conscious consumer pulled back a little. And we saw it in other markets, too, like Las Vegas. But it happened here. And I think a lot of it was created by the overhang on what the hell was going to happen with the big beautiful bill and tariffs, and the media was saying the world was going to fall apart. But what has actually happened as the year has progressed is that obviously, things have stabilized very, very well. The market, the New York Stock Exchange, and the S&P at all-time highs right now. Trade agreements are being confected, and interest rates are moderating. Corporate profits seem to be in good shape, and airline traffic is up. And I'll give you a statistic that was relayed to me last night by the CEO of the Nashville Airport. October traffic into Nashville was up 10% over last year. And the amount of traffic that the airport received in October was the best October Nashville has ever had. We've been, I think, a little cautious in what is going to play out in the months of November and December, and that is reflected in our guidance. But as we look forward to 2026, 2027, we have this new stadium opening that is going to dramatically increase big, big concerts. We have a whole bunch of new developments taking place on the East Bank. We have a greater capacity to put more traffic through this airport. We have folks, I can tell you, every one of the 3 large airlines that are flying in from Europe has increased the capacity of their airlines over the course of the last couple of months. So as we look forward to '26, '27, '28, I think we're going to see a surge in tourism in this city, and I think it's going to be long-term, really good for these iconic assets that we own. Cooper Clark: And then I guess, how should we be thinking about a potential spin of OEG? Are there more bolt-on acquisitions within the entertainment business or additions you need to make to the leadership team that you want to get done first? Colin Reed: Well, the opportunity we have with this business with the acquisition of Southern, what we've done in Austin, the expanding into markets like Las Vegas, I would be very surprised if you don't hear from us over the course of the next few months in other markets that we will potentially move into markets that are very country music-centric so we can intercept those consumers in their source markets. The great thing about this business is I think we have more opportunity to grow it today than we've ever had. And I would suggest that over the course of the next 12 to 24 months, you'll hear from us more on the growth of this business. Operator: We will move next with Aryeh Klein from BMO Capital Markets. Aryeh Klein: Maybe first on cancellations, which ticked up in the quarter. Can you provide a little bit more color on recent trends? What have you seen here in October? And is this still mostly government-related or any other sectors where you've seen an uptick? Patrick Chaffin: Aryeh, this is Patrick Chaffin, and good to hear from you. Yes. So cancellations were up in the quarter. We were expecting that as a result of the tariff situation that began in the second quarter of this year. I would tell you that as we look across the year, if you look at the Smith Travel Research information, U.S. group monthly occupancy started to decline in April of this year with the tariff situation emerging. And while our group business has fared really well through that tariff situation that's characterized Q2 and Q3, the overall U.S. group monthly occupancy has continued to decline and appeared to trough roughly in August based on Smith Travel information. And it has been recovering in September and potentially in October based on what we've seen so far. So it's too early to tell how cancellations are going to fare in the fourth quarter, but it appears that while it's still down, it's starting to move in the right direction. For us we have seen elevated cancellation activity. We have also seen group leads and group demand in the corporate sector increase at the same time. So we've been able to mitigate some of that impact. But cancellations have been elevated. They've been mostly in the government and government-related sectors, but we have seen some impact from corporate layoffs that have been occurring across the country. But again, I would stress corporate leads and corporate booking volumes continue to be very, very strong. So we've been able to mitigate some of that. So we'll see how the fourth quarter goes. But we do feel like, while overall U.S. monthly occupancy and demand are still down, it is moving in the right direction. Aryeh Klein: And then curious if you can touch on some of the underlying leisure assumptions for the fourth quarter. Last year was a bit of a challenge, and I think you made some changes to the ICE programming. Any early feedback on either bookings or expectations? And then I believe you're also bringing ICE to Hill Country. How is that shaping up? Colin Reed: Good questions. Pat, do you want to deal with that? Patrick Chaffin: Yes. So Hill Country will have ICE for the second year in a row. We'll bring ICE to Desert Ridge next year. But we are expecting improved performance in ICE and in leisure in the fourth quarter of this year versus last year, about a 5% improvement. I would tell you that we're cautiously optimistic. It's still early, but we have some really positive trends occurring right now. Our ICE tickets are up. We've booked about 300,000 tickets to date. It's only about 21% of what we expect to actualize for the full holiday period. But the 21% we have on the books is about a 6-point improvement over what we had booked at this point the same time last year. So we're up about 95,000 tickets over the same time last year. So we're moving in the right direction to achieve that improved performance year-over-year, and we're in a good spot. From a transient room night perspective that's associated with the leisure holiday bookings, we booked about 127,000 room nights to date. That represents about 60% of what we expect to actualize for the 2025 holiday period, and that's an improvement over what we had booked same time last year as well. So we're up about 11,000 leisure room nights. So we've forecasted an improvement both in tickets and in leisure room nights, and we appear to be on pace to make that happen. I would remind you that we still have about 79% of our ICE tickets to book, and about 60% of those book within a 10-day travel period. So still a lot of wood to chop, but we are moving in a very encouraging direction, and we're cautiously optimistic. Operator: Our next question comes from Smedes Rose with Citi. Bennett Rose: I wanted to just ask a little bit about, I guess, the relationship between gross definite room nights that you show quarterly and the net definite room nights. Obviously, the gross improved nicely year-over-year. The net declined for the second quarter sequentially. I'm just wondering, do those 2 go together? Should be looking at the flow-through of one to the other? Or maybe you can just speak to what those numbers are telling you? Patrick Chaffin: Hi, Smedes, it's good to hear from you. Let's talk about gross versus net on the group side. So the main difference between those 2 is -- let's talk about gross first. As I mentioned earlier, we're seeing really great production from the sales team. We believe we have the best sales team on the planet on the group side, and they continue to perform. Corporate leads are up, and corporate bookings continue to be up. And so they're doing a great job of really taking advantage of the opportunity, even though we are losing some of the cancellations and revals. So on the gross side, we see really good production on the corporate side. To your question on net, the difference between gross and net is essentially cancellations and revals. And when I say revals, that's groups who have previously contracted for, let's say, 1,000 room nights in their block who then call in and say, "Hey, due to tariffs, we're pulling back down to 800 or 700 rooms from our originally agreed upon block. So you have your gross number, which is booked by the sales team. And then if a cancellation or reevaluation of that room block occurs, that's the difference in the net. And so that all the nets together produce the net production in the month or in the quarter. So if you think about what's going on, as I mentioned, corporate room nights continue to be strong, and the folks who are booking right now have already taken into account the impact of tariffs and everything else that's going on within their business. And so they're contracting at a more realistic level based on what they know is going on in the economy. The room nights are on the books previously that are calling in and reducing their blocks are just taking into account now what's going on in the economy. So we continue to see really strong gross results, offset somewhat by what's happening on the netting side with reevaluation of the blocks from groups already on the books and the cancellation that has been occurring. Bennett Rose: And then you mentioned in your opening remarks that corporate bookings are outpacing association bookings. Do you attribute that largely to the context of tariffs that you were just speaking to? Or is there something that you might think might, I guess, fuel association bookings going forward over the next few quarters? Patrick Chaffin: Yes. I mean, there's definitely some impact from the tariffs without a doubt. The other thing I would point to, though, is where we stand at this point in the year. We currently have 7.9 million group room nights on the books from a same-store perspective for all future periods. At this point in the year, that's the highest level we have ever seen, and it has a really strong rate associated with it as well. So there's the impact of tariffs, but there's also the impact of the fact that we just have less availability on the books for selling into the future than we've ever seen in our history, which is a good problem to have and will help us further compress group ADR going forward. Colin Reed: Smedes, my hope would be that, that this shift towards the corporate mix will become more systemic over time because as we've talked about in the past. One of the things that we're trying to accomplish with the capital investments we're making across these hotels is to improve the quality of the rate and improve the quality of the group, and lean more into that corporate customer versus some of the lower-rated SMERF and association business. Operator: We will move next with Patrick Scholes from Truist Securities. Charles Scholes: Question for you specifically on the D.C. National. Are you seeing any impact from the government shutdown as it relates to 4Q expectations or just forward bookings in general? Patrick Chaffin: Yes. Patrick, this is Patrick. Yes, we have seen a few groups that have pulled back or canceled as a result of the shutdown. But it has been pretty isolated, honestly. And it's not really been material in terms of the number of groups that have called in and said, "Hey, we're having to pull back or cancel. So there has been some impact, but it has not been very material. It's pretty isolated thus far. Colin Reed: But it's fair to say National's performance was terrific. Patrick Chaffin: Yes. National is right on plan for the year, doing a great job. And as we look to 2026, we look for additional ways to offset the impact of the collective bargaining agreement, but the property is in a really good position. Colin Reed: And some of that you're seeing from the capital we deployed coming out of COVID, around food and beverage, and the room renovation that we did. Those investments are paying off. Patrick Chaffin: Yes. And we're booking a bunch of business. So it's pretty good. Operator: Our next question comes from Dan Politzer with JPMorgan. Daniel Politzer: Group, it's pacing up nicely for 2026, up 8% and 2027 up 7%, I believe you said. Can you maybe talk about how the conversations with group and meeting planners ex ex-government, obviously, have evolved? Like, have they meaningfully improved versus 3 or 6 months ago, that gives you maybe increased confidence as you look out to that '27 guidance that you still have out there? Colin Reed: Do you want to take it? Mark Fioravanti: Sure. Yes. I mean, you saw what happened in our third quarter results. There was a bit of an overreaction in the second quarter to the tariff situation, and folks significantly reduced their expectations for the third quarter. As we actually moved through the third quarter, things improved somewhat, and we actually ended up beating our expectations on the banquet contribution per group room night. The fourth quarter is more dominated by the transient side. And I don't want to give any guidance on 2026 right now, but we feel like we're well-positioned for 2026, and we're hopeful, as I was alluding to earlier, that while, again, U.S. group demand is currently still down, it is moving in the right direction. So we see meeting planners pausing somewhat in some of their decision-making around when to book, but we're not seeing them wholesale pull back and make any changes. It's really just, hey, the environment is volatile. We're watching it, and we may delay our decision-making a little bit, but we feel like we're in a great position for 2026 as we look towards that and start planning for it. Colin Reed: Hi, Dan, this is Colin. I want to make one observation. And we've been in this business here, certainly, Mark and I, Patrick, almost 25 years running this business here. And we've seen these periods where we have volatility in the mindset of the group consumer. But Mark said it 5 minutes ago, the group is not vanilla. Different companies that are focused on group operate in very different ways. And what we have done is, I think, we put together a pretty good management team in these hotels. We have world-class physical assets. We generate really good levels of service. And as a consequence, we have a high degree of loyalty amongst these meeting planners. And that is one of the reasons why you see us booking the living daylights out of this business and why going into 2026 with the numbers that we have on the books. And it's something that's taken a long time to perfect. And we will go through these periods. Tariffs will create a problem in the mindset of many companies. But at the end of the day, these companies have to meet and the associations have to meet, and they choose to meet in the places that deliver the best levels of value for them, and we believe that is our company. Patrick Chaffin: Yes. And I think an important aspect to keep in mind as it relates to '26, that 8% revenue increase year-over-year, was about 2/3 of that premium was from rate. The durability of that rate premium versus an occupancy premium at this point of the year is much stronger. And that's really driven by the fact that we have been investing capital and we have been focusing, as Colin was talking about, on these higher-quality corporate customers. So you're seeing that strategy play through into the numbers. Daniel Politzer: And then just pivoting to entertainment. It sounds like there are a couple more investments coming in, obviously, Category 10 in Las Vegas. What's your appetite at this point, or thoughts around monetizing that? Is there a certain EBITDA number you guys have marked internally that you want to get to? Or is it just that you're seeing how it evolves over time? Mark Fioravanti: Well, Dan, you're a sophisticated analyst. The EBITDA is one measurement. The growth characteristics are another measurement. Companies that are able to articulate that they have a growth rate of whatever it may be, whether it's 5%, 10%, 15%, or 20%. As you go up the scale, invariably, the investment community is far more receptive to companies with higher growth rates than lower growth rates. And so it's a combination of things. And as we are plowing the field and sowing the seeds, we've got a lot of stuff that will come out of the ground here over the next 12 to 24 months. But here's what I do believe. And I know Patrick Moore, you believe this, too, that this is an extraordinarily valuable asset that we have. And we want to pick a moment in time. And at that moment in time, we will create a lot of value for our shareholders. This is a very valuable business. Operator: Our next question comes from Duane Pfennigwerth with Evercore ISI. Duane Pfennigwerth: Within your corporate group bookings, are there any specific industries you would call out from a recovery perspective? Mark Fioravanti: That's one of the beauties of our business. We don't have one segment that operates over 5%. So how would you answer the question, Patrick? Patrick Chaffin: No, I would completely agree with what you just said, Colin, which is that corporate is strong for the most part across the board. And I would call out any one sector as being stronger. I mean, we've obviously been shifting our guns towards fintech quite a bit. So that's an area that we've been expanding in, but I wouldn't say there's greater growth in any one segment right now. Colin Reed: It's fair to say that the impact that we've seen this year, obviously, from the government shutdown as well as all the devil's work It's we're really seeing weaknesses in the government-related large consulting groups, segments that rely on government contracts. Duane Pfennigwerth: And then just with respect to Desert Ridge and some of the groups booking into that, broad brush, how many are existing rotational groups versus new to your portfolio? Mark Fioravanti: So I would tell you that we've only begun to scratch the surface on that. We actually just hired 2 new sales resources who focus on lead generation, who are going to be solely focused on increasing the overlap between Gaylord and JW, as well as increasing the rotational opportunity between the JWs that we own. So it's really too early because they honestly have just been hired in the past 45 days, but we're really encouraged because we believe that we've seen immediate impact in the collaboration and communication between the teams. And I think I'll be able to talk to you in February about some really interesting and encouraging results as a result of those hires. Operator: We will move next with Chris Woronka from Deutsche Bank. Chris Woronka: I want to ask, as you look out, this is more of a multiyear, longer-term question, if that's okay. When you look at the composition of groups, and I'm really talking about by size, but also maybe a little bit corporate versus association. Is there any desire to maybe reduce your mix of the smaller short-term groups that can be more unpredictable? And are you seeing greater, I guess, growth in demand from the larger groups on the corporate side or from the smaller groups that like to book closer in? And then I have a follow-up. Patrick Chaffin: Let me start. The last time we did a big, big, big piece of research, and the last time we observed the research that Smith Travel did, large groups are the groups that are growing in this country. And we are uniquely positioned because of the scale of our assets and our ability to accommodate these large groups. And it's one of the things that I know I look at every month, Patrick, when we get our sales report, is the way the room nights how they fall between 10 to 300 and larger. So we're seeing good growth in the large groups, but how would you answer that question? Mark Fioravanti: Yes. Chris, I was actually looking at that last night, and it was interesting to see that for 2026, we have a higher mix of the larger groups on the books versus the same time last year, as we looked into 2025. So, as Colin has been talking about for a few years now, we continue to see that growth in the larger groups. But I do want to say the small groups are always essential to what we do. They have a higher rate, they book short term, and they allow you to really top off your group business with the remaining patterns that may be open. And so they come along at the last minute and help you fill out that piece of business, and then you put on top of that any leisure opportunities that you might have. So we're increasing the mix towards the larger group, but the small group will always be essential to finishing off the business. Chris Woronka: The follow-up is maybe for Colin or Mark. I mean, you guys have a lot of perspective. You've been in Nashville for a long time. Colin, I think many years ago, I'm not going to hold you to this, but I think many years ago, there was a thought to maybe doing something around your Opryland with some of the parcels that might be available or you already. My question today is, really, how do you see that little submarket near Opryland evolving? There's kind of a lot of retail stuff across the street. I know you guys at one time were partners in the development across, I think, Briillley. Is that submarket of Nashville something where you think that could become a new little market aside from downtown, and you can kind of create your own buzz there aside from obviously what Opryland already has? Colin Reed: Yes. So here is my belief. And I spent a lot of my time talking with the elected political leaders of this city and the state on this issue. My perspective is, and some of it has been shaped by Mark's and my history in the early '90s, shaping casino gaming throughout the country and particularly in Las Vegas. My view is that the demand for the product that originates in this city is blowing up right across the planet. And the opportunity for this city is extraordinary. And the question becomes how do we do it, and the form in which we do it. So we own a lot of land out here on the eastern side of the city. And I think we've proven to the world that we don't have a geographic problem here because we've created with Opryland, the most successful convention resort in America that doesn't have a casino. There's not another convention resort that comes close to what we have built over here. And then you look at the Grand old Opry that puts 0.75 million people through it every single year. And my view is that we have a big-time opportunity to change the campus and make it more compelling over time for the consumer that I believe will turn up in this city in droves over the course of the next decade. And I think the other thing that using the parallel to Las Vegas, you think about Vegas and gambling. And 10 years ago, the notion of putting professional sports in that city was crazy. Nobody would have thought it was possible. Now you have professional sports in that city, and that city has become arguably the sports capital of America. We're going to be building here a state-of-the-art city, a state-of-the-art stadium here. And we're going to be attracting Super Bowls, final bowls, college playoffs, WrestleMania, as Las Vegas has that didn't exist. The notion of putting a Super Bowl in Las Vegas a decade ago was crazy. But we have a product here that people want, and it is absolutely blowing up right across the globe. And I do believe that the potential for Nashville is extraordinary. Operator: We will move next with David Katz with Jefferies. David Katz: This may or may not be top of mind today. But just curious what your appetite is and what the boundaries would be for potentially more acquisition. One of my go-to issues is always, as you know, I've followed the property in Chula Vista for many years. And that's underlying a more general question. Colin Reed: Shall I start? Yes, go ahead. So, David, the way we've known each other for a long, long time. And I think you would appreciate that the way we think about acquisitions is purely how do we create value for our shareholders? How do we generate really high-quality return on invested capital? So as we sit here today, we have 7 of these beautiful babies, these great hotels in great markets, 2JWs, 5 Gaylords. And here's the thing. We have, I don't know, right now, $1 billion, $1.5 billion in capital in some way, shape, or form under construction that will happen over the next 1, 2, 3 years, and we believe that the majority of that capital is going to generate mid-teen type returns. And all of that is going to create value for our company. So the issue for us is, is there a market that we can plug an asset into? Is there a market that Patrick Chaffin was talking about a second ago about plugging in Desert Ridge into our system and moving customers around? Is there a market that we're not in that we'd like to be in? And the answer is there may be 1 or 2 markets left in the country. But the issue is the asset that we would acquire, the price at which we would acquire it for and how we create real value for our shareholders by doing that. My personal view is I think that if I were a betting man, I would say over the next 1 to 2 years, I think the deployment of capital will be focused internally versus externally, but who knows? The internal rates of return on these incremental investments are pretty hard to compete with if you've got to buy existing assets at market rates. Yes. But we did the bridge a few months ago, and we've been at that one for, I don't know, 10 years, looking at it and trying to get it. And it's simply because of the belief that we can rotate customers into that top 10 group market, Phoenix, Scottsdale, and that over time, we can expand that property and generate really high returns on that incremental capital. So we'll see. But if I were a betting man, I bet you we'd be more likely focused on deploying capital internally than externally. Operator: We will move next with Jay Kornnerbreg with Cantor Fitzgerald. Jay Kornnerbreg: Last quarter, I believe you guys had commented on the expectation for RevPAR in the third quarter to be down mid-single digits and reverse for the fourth quarter. And so I guess just curious now that the third quarter came in ahead of those expectations and yet the annual guidance was maintained, I guess where are you maybe seeing some 4Q softness? Is it really just related to government or anything else that's worth calling out? Jennifer Hutcheson: We've mentioned several times throughout the call already, Jay, that we are seeing government, government-related weakness. That's not a surprise as it relates to the shutdown that's still ongoing. But certainly some bright spots in terms of how leisure is pacing. So all of that's coming together to where I think we are cautiously optimistic about how the fourth quarter will pan out. We're in as good a position, I think, as we can be with all the headlines that are ongoing. Certainly pleased with how the third quarter turned out relative to our expectations, and feel very comfortable being able to reiterate that full year guidance on the hotel segment. Mark Fioravanti: I think the other part of it is the thing that we don't know that we're being cautious about is how long this dam shutdown lasts. And as the shutdown prolongs, do we see an acceleration in negative behavior by the consumer? And we don't know the answer to that question. Nobody does. And if these politicians can get their act together and get this country back to work, I think our fourth quarter should be pretty decent. But the big unknown is the craziness of what is taking place in Washington right now. Jennifer Hutcheson: Yes. But Mark mentioned we've got a comparable number of room nights on the books from a group standpoint in the fourth quarter. Patrick mentioned that at improving rates. And ticket sales, while a small proportion of the total complement that we would expect for the full holiday season has transpired this early on, given the short booking window for leisure, it's pacing ahead. Colin Reed: I'm encouraged by what we saw in October here in Nashville in the amount of airline arrivals, which is material. So we'll see. Patrick Chaffin: And I would point out, this time last year, it was very clear that folks were very distracted by a national election. That is not the case this year. We believe that's going to bode well for leisure. But to Colin's point, it's just a question of how much this government shutdown is a distraction to the groups of the country. Jay Kornnerbreg: And then maybe just one follow-up, moving just to the renovation side with a number of renovations being completed and others ongoing. As we look towards 2026, do you expect the EBITDA lift from completed projects this year in 2025 to outpace the EBITDA displacement from renovations that will be ongoing next year in '26? Jennifer Hutcheson: Yes. Jay, I appreciate the question. We're going to give guidance in '26 as we finish out our budget. We'll be meeting with Marriott here in the next week or 2 to review what that's going to ultimately look like. We can certainly give you the building blocks, which are very consistent with what we've talked about all year. Certainly, we've already shown that the capital that has come online from the projects we did last year, if you look at the Rockies, has started to return. Performance has been great there, related to the Grand Lodge work that we did there last year. So you're seeing that. So certainly, as things come online like the Opryland Sports Bar, which will be completed early in the year in 2026, you will start to see returns from that. But as Colin mentioned, we've got a lot of things in the pipeline, a lot of good things that are going to return well, and those are going to be ongoing. So we'll just see how that can shape up in terms of improvements from what's coming online and then continued investments as we continue down the multiyear path. Patrick Chaffin: It would be fair to say that we don't expect any incremental headwinds from a disruption perspective next year? Colin Reed: No. And I would give a shout-out to our design and construction teams, who are really getting all of this renovation and construction work down to a science and doing a phenomenal job with minimizing the impact on the business and trying to pull back on the displacement that we've already projected. Mark Fioravanti: We have 3 minutes from the top of the hour. Maybe take one more question. Got a couple. We'll shorten our answers. Let's try to get through all these. Go ahead. All right. Operator: We will move next with Chris Darling with Green Street. Chris Darling: Colin, you mentioned that in all likelihood, OEG will expand into other markets in the coming years, or at least you have the opportunity to do so. How do you think about the international opportunity for OEG? Any thoughts on growing overseas? Or were you primarily referencing new U.S. markets? Colin Reed: It's funny you asked that question. Patrick Moore, Mark, and I, 2, 3 weeks ago, had dinner with Luke over in London, Luke Holmes, who was with us on the Opry show that we did at Royal Alber Hall. And Luke would love to do a category over there simply because of the popularity that, that man has. It's extraordinary. I think it's something that we'll be looking at, but it's not something that I would say, no, we're not going to do that. The popularity here is music. And I think the product that we deliver would be well sought after. The issue is finding a partner to do that in that neck of the woods. Doing business in the U.K. is difficult. And so we'll see. But the good news is, I think we've got lots of other opportunities to grow this business domestically. Mark Fioravanti: And we do have content airing in the U.K. now for the Opry show. Yes. So the brands are present. We just don't have a physical presence in those markets at this point. Operator: We will move next with John DeCree with CBRE. John DeCree: Maybe just one on that same theme about international next year, the World Cup in North America. I know there's only a handful of games in Dallas, but how do you think about given Country Music's penetration in Europe, follow-on trends? Is there any programming that you're thinking about doing? Have you seen any early bookings yet? I know it might be early, but I think it dovetails with our conversation on country music expansion in Europe, given there might be some customer overlap. Curious if you have any initial thoughts. Colin Reed: Well, we're going to see a lot of international travel in the summertime next year for the World Cup. And unfortunately, our stadium here will not be complete. And I can tell you, I've spent quite a bit of my time with other folks in the city, quoting FIFA to try and get the 2026 World Cup here in Nashville. But there are going to be markets where there will be some lift, like, for instance, Orlando is a market, I think that we'll see lift because of the World Cup next year. But the interesting thing is, we're very active, not we, Ryman, but we, the city, are very active in quoting FIFA for the Women's World Cup here because we will have a beautiful stadium. And so this is a consumer base that we think could be potentially very valuable for international sporting events. We just announced, I think it was last week, that we secured the Olympics for the physically disabled folks. What are we, Special Olympics? Yes, Nashville has secured that here. So this is a consumer base that we are very interested in. All right. I think, Nikki, that's it. I appreciate everyone being on the call this morning. A lot of good questions. Our business is in good shape, and we're looking forward to this fourth quarter. And I know I'm looking forward to seeing how '26 plays out because I think it could be a good year for our company. Thank you, everyone. Operator: Thank you. And this concludes the Ryman Hospitality Properties Third Quarter 2025 Earnings Conference Call. Thank you for your participation, and you may now disconnect.
Operator: Good afternoon. My name is Charlie, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Teradata Third Quarter 2025 Earnings Call. [Operator Instructions] I would now like to hand the conference over to your host today, Chad Bennett, Senior Vice President of Investor Relations and Corporate Development. You may begin your conference. Chad Bennett: Good afternoon, and welcome to Teradata's 2025 Third Quarter Earnings Call. Steve McMillan, Teradata's President and Chief Executive Officer, will lead our call today, followed by John Ederer, Teradata's Chief Financial Officer, who will discuss our financial results and outlook. Our discussion today includes forecasts and other information that are considered forward-looking statements. While these statements reflect our current outlook, they are subject to a number of risks and uncertainties that could cause actual results to differ materially. These risk factors are described in today's earnings release and in our SEC filings, including our most recent Form 10-K and in the Form 10-Q for the quarter ended September 30, 2025, that is expected to be filed with the SEC within the next few days. These forward-looking statements are made as of today, and we undertake no duty or obligation to update them. On today's call, we will be discussing certain non-GAAP financial measures, which exclude such items as stock-based compensation expense and other special items described in our earnings release. We will also discuss other non-GAAP items such as free cash flow, constant currency comparisons and 2025 revenue and ARR growth outlook in constant currency. Unless stated otherwise, all numbers and results discussed on today's call are on a non-GAAP basis. A reconciliation of non-GAAP to GAAP measures is included in our earnings release, which is accessible on the Investor Relations page of our website at investor.teradata.com. A replay of this conference call will be available later today on our website. And now I will turn the call over to Steve. Stephen McMillan: Thanks, Chad, and thanks, everyone, for joining us today. Q3 marked another quarter of solid execution as we beat our revenue and recurring revenue guidance ranges. We delivered non-GAAP earnings per share of $0.72, soundly ahead of our outlook, and we delivered free cash flow ahead of expectations. We posted our second consecutive quarter of total ARR growth ahead of our initial target of the fourth quarter. With a return to total ARR growth ahead of schedule, we have strong conviction in our durable growth path and expect this growth to continue in 2026. We also expect that the return to positive ARR growth, combined with the cost savings and productivity measures we've taken will result in meaningful free cash flow growth. Whether in cloud or on-prem, we are helping organizations build the data foundation and are delivering the enterprise context required for AI solutions. And we see the shift in our business from classic EDW towards the autonomous AI and knowledge platform. We see enterprises reevaluating how to cost effectively deploy Agentic AI. As we have noted for the past several quarters, we are seeing a resurgence of hybrid environments, which reflects a growing understanding of how enterprises can best leverage both on-prem and cloud capabilities. It isn't just about choosing between environments anymore. It's about effectively operating across both to meet diverse business needs. Our platform is designed to give customers the opportunity to run Agentic AI at scale, wherever that data resides in their business in public cloud, on-prem or private cloud. Interest in AI and in particular, Agentic AI continues to grow in virtually all industries. However, most companies are still in the early stages of deploying this technology and Teradata sits squarely at the center of this revolution. We believe we provide the enterprise context that AI agents need to deliver trusted, reliable results at scale. Without this knowledge, even the most advanced models can be just a plain wrong. This shift also creates a very specific opportunity because Agentic AI with its 24/7 always-on query potential can increase workloads on data platforms by up to 25x and use 50x to 100x the compute resources than what was required by previous modern analytic workloads. Teradata is uniquely built to handle these mixed workloads and high volumes of tactical queries as enterprises deploy potentially thousands of agents and evaluate millions of relationships across thousands of tables to make a single decision, milliseconds matter. We not only manage the critical enterprise data that powers these AI systems, but we also can deliver the performance required at the level of performance and scale that AI needs. Teradata was built for these types of enormous workloads based on our massively parallel architecture, patented workload management and query optimization that is designed to provide a high-performance environment with predictable costs that can deliver the most complex AI workloads. Our patented QueryGrid data analytics fabric provides seamless high-performing data access, processing and movement across multiple data sources. Our industry data models are built on decades of working with the Global 1000. And through these, we bring deep context to language models, another area where we can bring unique benefits to our customers. We believe Teradata is the best autonomous AI and knowledge platform for Agentic workloads and that our platform provides the best price performance, whether on-prem or in the cloud. In the quarter, we were named a leader in the Forrester Wave Data Management for Analytics platforms, and the report noted that Teradata is a good choice for organizations seeking to support hybrid cloud DMA deployments, especially where reliability, scalability and high availability are essential. We're building the capabilities for the future to enable AI speed and scale. Earlier this year, we announced Enterprise Vector Store, a capability that enables organizations to include unstructured data and their integrated knowledge foundation. We also enhanced ClearScape Analytics with unified ModelOps capabilities designed specifically for Agentic AI. These provide seamless native support for open source models as well as CSP model APIs. We launched our MCP Server to deliver faster context autonomously, and we've recently taken several more significant steps to further our position. In September, we announced Teradata AgentBuilder, a suite of capabilities designed to accelerate the development and deployment of autonomous contextually intelligent AI agents. Now in private preview, it leverages open source frameworks, our MCP Server and deep semantic access to enterprise data across cloud and on-prem environments provided by our knowledge platform. Customers can develop their own agents or use ready-to-deploy Teradata agents to accelerate implementation and deliver rapid impact. Launched at our Possible event last month, Autonomous Customer Intelligence is a software and services offering that embeds Teradata agents across the customer experience or CX journey. These agents can uniquely leverage 4 decades of Teradata innovation and contextual knowledge from solving mission-critical industry-specific data challenges. Our integrated approach makes sure our agents are extensions of the enterprise data platform and broader knowledge ecosystem rather than generic tools that fail to deliver meaningful impact. To help customers transform AI pilots into production-ready Agentic solutions that deliver significant business value, we also launched new AI services. These new services are intended to make Agentic AI a reality at enterprise scale by combining embedded experts, proven methodology and Teradata's best-in-class autonomous AI and knowledge platform. Using a sprint-based use case-driven approach, Teradata AI services offer flexible tiered offerings that meet organizations at any stage of their AI journey from initial pilots to enterprise-wide Agentic deployments. Unlike competitors who offer either consulting or technology, we believe Teradata uniquely delivers both, enabling real-time context-aware agent decisioning that leverages our suite of AI tools, trusted data and decades of industry innovation. Working with our partners in an integrated approach accelerates deployment of autonomous intelligence, CX or otherwise to drive measurable business outcomes. We have forward deployed resources with deep expertise and talent. These AI/ML engineers and data scientists are working with customers across the globe, positioning Teradata as a leading AI/ML player and helping customers move from proof of concepts to production. This team is on track to complete more than 150 AI engagements with customers this year. We're also seeing a significant turn in our pipeline towards AI-fueled projects. Let's look at a few examples of wins from the quarter. These demonstrate the breadth of our offers in hybrid environments, cloud and on-prem. A multinational automotive manufacturer is expanding its Teradata Cloud platform on AWS to support increasing AI/ML workloads as it combat cybersecurity. Executing approximately 10 million SQL statements per day, the customer is moving beyond rule-based approaches and adopting AI/ML technologies to enhance its analytical capabilities. One of the largest U.S. health care providers deepened its strategic alliance with us as it further scaled its Teradata cloud deployment running on Microsoft Azure. This expansion, building on momentum from earlier this year, underscores the provider's continued confidence in our high-performance cloud platform to support mission-critical data and analytics workloads. With this expansion, the organization is further positioned to drive operational excellence and harness complex health care data at scale across its entire system. A leading Japanese heavy industry manufacturer chose Teradata for its on-prem data platform as it transforms to a data-driven manufacturing entity and improves operational efficiency. A Central European financial services company recommitted to us through a 7-year partnership with Teradata as a Service on AWS. This enhances security, provides uninterrupted operations through disaster recovery systems that match production, supports monthly innovation testing and meet stringent data sovereignty requirements. We recently held our annual customer event named Possible. It was 3 days of high energy with our people, partners and customers speaking of what they are doing now with data and analytics and what they are looking ahead to do with AI and Agentic AI. It was our pleasure to recognize VodafoneThree, Ooredoo and Sicredi at the conference for demonstrating exceptional creativity, technical excellence and business impact through the use of AI on the Teradata AI and Knowledge platform. VodafoneThree in the U.K. was recognized for deploying an AI-supported fraud detection framework by leveraging AI to detect and mitigate fraud that has strengthened customer trust, improved regulatory compliance and enhanced operational resilience. Ooredoo Qatar, a leading Doha-based telco, earned this award for its advanced analytical capabilities and AI-powered customer engagement strategy. This strategy is built on Teradata VantageCloud and ClearScape Analytics, which were integrated with and run on GCP native services. Sicredi, Brazil's largest financial cooperative, was honored for its innovative use of ClearScape Analytics and our cloud platform to transform credit risk management as well as support sustainability initiatives. Most recently, Sicredi has also begun developing an AI agent to support provision analysis under Brazilian banking regulations, further strengthening its governance and risk management capabilities. We also held our first AgentBuilder workshop at the Possible event. This hands-on workshop was oversubscribed and packed with customers keen to build AI agents on Teradata. We're in the process of launching an online AgentBuilder experience to help accelerate the development and deployment of autonomous, contextually intelligent AI agents. It will be available from our website in the coming weeks. We held our annual partner forum concurrently with the Possible event, and we had strong year-on-year growth in partner participation. Companies that will win in the Agentic AI future will be the ones that create the most trusted interoperable foundation that lets every other AI innovation flourish. We believe that's our role in the ecosystem. We strive to be the trusted data foundation that makes everyone else's AI work better with the governance layer that lets companies experiment safely. We're partnering across all layers in the ecosystem, and we have strong partner co-sell activity in the third quarter, validating the strength in our ecosystem and identifying and nurturing new opportunities. While at our event, I hosted a fireside chat with one of our partners, ServiceNow. We discussed how together we can power autonomous operations at scale by combining our enterprise-grade analytics with ServiceNow's workflow engine. Our platforms work together to enable seamless integration, governance and automation. We're collaborating to help customers realize the full potential of their data, delivering intelligence and automation at enterprise scale. This is how we enable AI-native transformation for our customers, empowering organizations to break down silos, unlock real-time intelligence and transform every part of their business. By combining deep analytics, trusted data and intelligent workflow automation, we're enabling organizations to move from passive data collection to active Agentic operations, delivering real-time insights, proactive engagement and measurable business value. Exciting stuff, and that was just one of the leading partners that participated with us. We also hosted a number of industry analysts and a comment from Constellation Research summarize our focus on helping provide context to AI, noting that we believe there is no AI without context. That context isn't just data. It's the metadata, business logic and domain know-how that make AI decisions relevant and reliable. Without business context, even the best algorithms can't deliver the accuracy or explainability needed in real-world regulated environments. They also recognized that we are turning our decades of decision analysis experience into domain and industry knowledge models that give AI agents real context. And that our context intelligence framework captures how industries actually operate, so organizations don't have to start from scratch as we help teams build agents faster with enterprise-grade performance, governance and trust already built in. Our hybrid capabilities are resonating in our customer base with interest in our recent product introductions, AI Factory, MCP Server and AgentBuilder, giving us further conviction that we offer a unique value proposition. We provide the flexibility to have consistent data, compute models, workloads, outcomes and experiences across a hybrid environment. We have full confidence in total ARR and are affirming our outlook for 2025. In our recent discussions with customers, we have seen how the Teradata Knowledge platform is ideally suited for AI workloads. AI is always on with ever-increasing agents driving massive complex query volumes. That's Teradata's sweet spot. Our ARR mix may vary as we see customers evaluating between cloud and on-prem for where to deploy the workloads as they build for their AI-enabled future. Regardless of the deployment options they choose, customers can rely on Teradata to run Agentic AI at scale and provide the context needed for trusted results. Thank you very much. Now I'll turn the call over to John. John Ederer: Thank you, Steve, and good afternoon, everyone. I'm pleased with the progress we are making this year as we've demonstrated a return to consistent execution with our third quarter in a row of meeting or exceeding our guidance metrics. And perhaps as importantly, we expect that trend to continue in Q4 as we are reiterating our guidance for the full year. Looking at a few of the highlights for the third quarter. Total ARR growth was ahead of expectations, representing the second consecutive quarter of a return to positive growth. We exceeded the top end of our total revenue and recurring revenue guidance. We improved gross margin sequentially from Q2. We delivered considerable upside on our non-GAAP earnings per share, and we increased free cash flow on a year-over-year basis for Q3 and the year-to-date. Finally, as Steve commented, we are building a solid foundation this year to deliver continued financial improvement next year. In terms of our detailed financial results for the third quarter, total ARR grew 1% as reported and flat in constant currency. This is our second consecutive quarter of a return to total ARR growth, and this was driven by better retention and expansions in the quarter. At the beginning of the year, our target was to get back to positive total ARR growth by Q4, and we are pleased to be several quarters ahead of schedule. Cloud ARR grew 11% on an as-reported and constant currency basis, and the cloud net expansion rate was 109%. As discussed on our Q2 earnings call, we expected Q3 cloud ARR growth to be below our guidance range for the year due to the pull forward of a few deals last quarter. Total revenue was $416 million, down 5% year-over-year as reported and 6% in constant currency, which was 1 point above the high end of our outlook due to higher recurring revenue. Recurring revenue was $366 million, down 2% year-over-year as reported and 3% in constant currency, which was 1 point above the high end of our outlook. Recurring revenue as a percentage of total revenue was 88%, up from 85% in Q3 last year. Services revenue was $47 million, which was consistent with our recent performance. We are seeing a transition in our services business this year as the team is moving from migration projects to delivering AI services, which we believe will provide improved performance next year. Looking at profitability and free cash flow. Please note that I will be referencing non-GAAP numbers for expenses and margins and a full reconciliation to GAAP results is provided in our press release. For the third quarter, total gross margin was 62.3%, which was up 70 basis points year-over-year. On a sequential basis, total gross margin was up 400 basis points, driven by improvements on both recurring and services gross margins. Recurring revenue gross margin was 68.9%, up 140 basis points sequentially. On services gross margin, we took actions last quarter to align our costs with current revenue, and we made substantial improvement in non-GAAP gross margin from negative 2% in Q2 to positive 8.5% in Q3. Operating margin for Q3 was 23.6%, which was up 110 basis points year-over-year and up 720 basis points sequentially. Overall, we are seeing improving margins as a result of cost efficiency actions we started last year. Non-GAAP diluted earnings per share were $0.72, exceeding the top end of our outlook range by $0.17. The outperformance was driven by higher recurring revenue and lower expenses -- we generated $88 million of free cash flow in the quarter, which was up 28% on a year-over-year basis and provides us with increased confidence in our full year outlook. And finally, in the third quarter, we repurchased approximately $30 million of our stock or 1.4 million shares. We continue to target returning 50% of our free cash flow to shareholders in the form of share repurchases this year. Turning to our outlook for the remainder of the year. For the fourth quarter of 2025, we expect recurring revenue to be in the range of minus 1% to minus 3% year-over-year on a constant currency basis. We expect total revenue to be in the range of minus 2% to minus 4% year-over-year on a constant currency basis. And we expect non-GAAP diluted earnings per share to be in the range of $0.53 to $0.57. For fiscal '25, we reiterate our previous guidance for total ARR growth, and we are maintaining our range for cloud ARR growth. We have confidence in our total ARR target and continue to see a path to our cloud ARR range for the year. However, there are a handful of deals where customers are still assessing deployment options, which could have an impact on the mix between cloud and on-premise subscription ARR. We also reiterate our previous guidance for recurring revenue and total revenue. Given the guidance ranges that we provided for Q4, we anticipate recurring revenue and total revenue to be at the midpoint of our fiscal '25 ranges. On free cash flow, due to our strong performance year-to-date, we are narrowing the range to the top end of our initial outlook and now expect free cash flow to be in the range of $260 million to $280 million. Finally, we are raising our non-GAAP earnings per share guidance to a range of $2.38 to $2.42, reflecting our strong performance in Q3. Based on foreign exchange rates at the end of September, we anticipate 1 to 2 points of benefit to our Q4 '25 revenue. For the full year, we do not anticipate any material currency impact. Finally, we expect the non-GAAP tax rate to be approximately 23.1% and the weighted average shares outstanding to be 96.1 million for the full year. Again, please refer to our Q3 earnings presentation on our Investor Relations website for a complete list of our 2025 outlook ranges. In closing, we are taking actions that we believe will ultimately drive shareholder value. The first important steps were to: one, return total ARR growth to positive territory; two, focus on cost efficiencies; three, drive consistency in the business; and four, stabilize free cash flow, all of which are on track to achieve this year. As we start to focus on the objectives for next year, we are prioritizing our investments to capitalize on the substantial opportunity ahead for Teradata as a leading AI and knowledge platform for the autonomous enterprise. We believe that these investments, combined with the continued optimization of our business will enable us to deliver profitable growth and higher free cash flow. Thank you all for your time today. Now let's open up the call for questions. Operator: [Operator Instructions] Your first question comes from the line of Erik Woodring of Morgan Stanley. Erik Woodring: Steve, really nice to see the earnings and free cash flow upside this quarter. I think this was the first time since you began disclosing cloud ARR that we've seen sequentials be negative intracalendar year for cloud ARR. I know you mentioned that it would dip below the target range this quarter, but I guess I look at the 11% and say it felt a bit below maybe where you would have expected sequentials. But maybe you could just elaborate on how the quarter transpired for cloud ARR, when and where we see that net expansion rate bottom? And maybe why we just aren't derisking 4Q a bit, just given some of your commentary around customers assessing where they're going to be deploying with Teradata. And then a quick follow-up. Stephen McMillan: Yes. Thanks, Erik. So I think on cloud, we did perform to our expectations. As we said in our Q2 earnings, we did expect that linearity to be below the full year outlook. I think as we look at the market, we're not seeing -- we're no longer seeing that kind of headlong rush to the cloud. It's much more of a nuanced decision of how our customers can accelerate the time to value for the AI workloads that they're deploying in their environment. And we're continuing to see that pattern of customers using our hybrid capabilities. I think I've said in the past that a good proportion of our cloud customers have deployments both on-prem and in the cloud with us. And they can decide across that massive data estate that they run from a Teradata perspective, where to run that workload. And I think that's nicely evidenced actually by the fact that our total ARR growth is ahead of schedule overall. We expect it to return to growth in the fourth quarter. So being ahead of schedule from that perspective and demonstrating that we're growing overall with our customers is a good achievement as we've executed through the year. We do start to see our net expansion rate starting to consolidate. And I think as we look at the overall results for the year in terms of our guidance, we were pretty confident in our total ARR growth. And as we look to 2026, we continue to see a path for continuing ARR growth in 2026. Erik Woodring: Okay. And then just a quick follow-up. Your comment on -- I think you used the term meaningful free cash flow growth into 2026, at least to me, was the most confident I've heard you sound on free cash flow looking forward in a while. Can you maybe just unpack where this confidence comes from? I'm sure it has to do with ARR growth and some of your OpEx initiatives. But just -- I know you're not going to guide to 2026, but any way you can help us think about when you talk about meaningful free cash flow growth, kind of what you're trying to tell us between the lines? And that's it for me. Stephen McMillan: Yes. Thanks, Erik. I think you hit the nail on the head with the 2 points, but I'll just ask John to add any more color. John Ederer: Yes. I think that's exactly right. I mean I think if you look at how this year is progressing, we've done a nice job on free cash flow relative to where we were at this point last year. And I think we're doing the right things and really focusing on this is a key driver for us. Certainly getting total ARR back to growth territory has had a positive impact. And then the cost actions that we've taken last year and this year as well are also supporting that number. And so we feel like we're putting the right pieces in place to continue that improvement next year. Operator: Our next question comes from Radi Sultan of UBS. Radi Sultan: First for Steve, last quarter, we talked about, I think it was roughly 1/3 of pipeline, including an AI component. So I guess, first, like how did that track this quarter? You mentioned the agent offerings, MCP Server. Like is there any area in particular within the AI portfolio moving the needle? And then any way to think about how these AI discussions more broadly are impacting competitive win rates? Stephen McMillan: Yes. Thanks for the question, Radi. Yes, we're continuing to see that the AI influence pipeline increase. We saw it increase as we went through Q3, which is really great to see. We have supported that with a fantastic set of innovation and releases from a product perspective. Our new Chief Product Officer, Sumeet, is making a real difference there. In terms of we're measuring our innovation releases in terms of time from concept to press release. And I think as evidenced by the discussions we had with our customers at our most recent marketing event, they're really seeing those innovations is something that Teradata can provide in a holistic way to enable them to deploy Agentic AI workloads, whether it's from our Enterprise Vector store capabilities, our MCP Server, our AgentBuilder capabilities or ModelOps where we can include language model capabilities. So all of these, I think, are coming together. And one of our customers actually, I think, said it best where they said, Teradata is one provider in this area who's really putting it all together. But I think the most interesting thing, Radi, from a technology perspective is that we are seeing that the Teradata technology platform is really built for these AI workloads. When you think about an always-on AI agent, essentially that can execute thousands of queries and complex queries, so really large volumes of queries executing concurrently inside an environment with different types of workload. Our architecture inside Teradata, our massively parallel architecture, combined with our workload management and query optimization allows our customers to run those types of queries and the AI agents that they have developed to run those queries more effectively and efficiently than anybody else. Radi Sultan: Awesome. And then second for John. You've been in the seat a couple of quarters now, strung together a couple of nice quarters. I guess is it fair to think about your approach to guidance being relatively consistent since you joined? And maybe are there any leading indicators or KPIs in particular that you're looking at that give you confidence in the outlook especially around Q4? John Ederer: Yes. Thanks for the question. And I would say from an overall standpoint, I guess, in terms of guidance and our philosophy on it, we try to call it as we see it. And so we take a look at our forecast. We do have a number of KPIs that we'll look at from pipeline to our expenses to the revenue model, et cetera. There's a whole bunch of metrics that we'll take a look at and roll all of that up. When you talk about Q4, in particular, you're now getting down to the last few months, and we're literally going deal by deal. And so we've got that kind of granularity in terms of how we ultimately roll up the forecast and then our resulting guidance from it. Operator: Our next question comes from Yitchuin Wong of Citi. Yitchuin Wong: Steve, maybe I'll start with you. Great to see everyone in LA. I want to just follow on what Radi was asking, like around the competitive edge, like the Agentic AI strategy with autonomous at Possible and then AgentBuilder like really position Teradata like directly against some of this road map of your larger hyperscaler platform and even competitors like Databricks and Snowflake. Can you kind of help us understand what is really the longer-term durability competitive advantage that you see that Teradata can compete in the space? And is it more the hybrid cloud environment that you've been talking about and then the more enterprise IP within your decades of experience, maybe we can start there. Stephen McMillan: Yes. I think -- thanks for the question, YC. I think fundamentally, what sets us apart is actually our technology moat that we have already. It's the set of patented capabilities that allow us to execute these workloads in the most effective and efficient way, and we can do that both on-prem and in the cloud. So really being able to deliver that hybrid environment to our customers is clearly a differentiator for us. We announced earlier in the year our AI factory, which essentially combines a lot of capabilities together. We're partnered with NVIDIA in terms of the development of that AI factory. That gives us a fantastic base for future on-prem capabilities. We're looking forward to the next release of our Teradata technology platform, which will have GPUs built right into the platform in terms of executing that workload. But our customers are already using their Teradata on-prem platform to actually operate and execute AI workloads today in a very reliable way. And we're seeing it both in a real hybrid context, so both on-prem and in the cloud. At the end of the day, we see this as being a battle of the query engine. And we believe that our query engine is the best query engine to deliver AI-type workloads and to be that true knowledge platform in terms of building enterprise context for our customers. And that's built on all of the capabilities and solutions that we've developed over the last 40 years for our customers. We understand the domains around customer experience or supply chain management, and we understand the domains across all of the industries. So all of these things combined together to give us our unique positioning, and we are really excited about getting that message out to the marketplace and demonstrating that to customers on a day-to-day basis. Yitchuin Wong: Well, understood. Maybe one for John here. You talked about like the much improved service gross margin to positive territory in the quarter. It's great to see an inflection there. Could you kind of help us double-click on some of these actions? I know we heard talk about the team starting to leverage more FTE or maybe even AI FTE here within the sales motion, especially with these newer AI use cases. Is this something that expected to go forward that could help drive better margin here and or even efficiency driving like AI, leveraging AI within the company that you touched on a little bit during [indiscernible] as well. John Ederer: Yes. So I think a couple of different questions in there. I think in terms of the services business overall, -- to be perfectly honest, a lot of that is just rightsizing the organization for the current revenue stream that we've got there. We saw some headwinds this year due to higher migration activity in the prior year. And so for us, in the first couple of quarters, we were a little bit behind in that from a cost structure standpoint, and we fixed that in the second quarter, and we saw a nice rebound in Q3, and we think we've got some room to go in Q4. And so I think, again, there, it's just aligning the cost with the anticipated revenue. In terms of your broader question around margins overall and some of the things that we're doing with AI from an internal standpoint, there's actually quite a bit. And I won't do a justice, but I would encourage you to check out some of the presentations at our Possible conference. We had one that talked specifically about some of the things that we're doing internally. And there's a whole work stream around this that's really touching all parts of the business from cost of revenue through the operating lines. Stephen McMillan: I'll just add to that, YC. I think from an AI services perspective, we're seeing customers have a real appetite to deploy real solutions. So with the launch of our customer intelligence framework and also backing that up with real consulting expertise, folks that can actually implement AI solutions inside our customers, we're really pivoting our consulting and services capability to deliver on something that we see as a supply-constrained marketplace in terms of folks that actually know how to deploy these solutions inside our customer base. So our most recent press release in the last couple of weeks around AI services and the capabilities that we have to help enable our customers in this market is super exciting. And obviously, of course, working alongside our partners to deliver those capabilities to the market is super important for us. Yitchuin Wong: Yes, hopefully that traction continues. Operator: Our next question comes from Chirag Ved of Evercore. Chirag Ved: Following up on one of the prior questions here. I was wondering whether you could speak to the underlying trajectory of cloud versus on-prem at this point over the next couple of quarters, even qualitatively. Should we index more on the on-prem side of the business when we're looking out or -- and perhaps moderating cloud growth? And then any comments you might have on the associated margin and pricing implications, if you can share that? Stephen McMillan: Yes, I'll start and maybe John can make some comments. So I think -- Chirag, thanks for the question. I think we are definitely seeing that our on-prem is stabilizing, and we're seeing a rate of change and improvement. And that's due to and from an on-prem perspective, both retention and expansion of those on-prem environments. On that, we certainly are happy with our retention rates. It's in line with enterprise software and overall. But the fact is we'll take growth wherever we see it, right? And we're well positioned to take advantage of growth in this hybrid environment that some of our customers have got, but we're also really well placed to take advantage of on-prem growth for data sovereignty requirements or where the data gravity is on-prem. But we also see the fact that we can grow in the cloud successfully with our customers. We're seeing our expansion rates in the cloud pick up as we've gone through this year in comparison to some of our other years. And we expect that to continue from an expansion perspective. And so I think we've -- we're well placed to take advantage of the opportunity that's in front of us, and we'll see that growth in terms of that hybrid platform that we offer to the market. Chirag Ved: Okay. That's really helpful. Maybe just one more. Great to see more of a focus on AI services within consulting. It really speaks to the importance and percolation of this technology. Looking ahead, do you see consulting revenue stabilizing a bit at this point, driven by the focus on delivering AI services? Or is this still a category that you're involved with, but starting to or continuing to shift over to your partner ecosystem? Stephen McMillan: Yes. I think we've -- at our core, we're a technology company. We're about ARR growth. We do consulting and services to support our technology ARR growth. And clearly, the margin profile for that is where we want to operate. We've created that headroom, as we've discussed, in terms of creating that space for our partners to operate successfully with us. But I think every great technology organization needs a great consulting and services capability to support that technology value proposition. And it's great to be able to see our consulting and services organization pivot towards these AI services so that the relevance in the marketplace can increase and it can help our existing customer base and new customers that we come across deploy these AI solutions. And we see it actually as a great competitive differentiator. We've got a go-to-market motion now that supports a forward deployed engineering model to get POCs into our customers. But our consulting and services teams and their partners are going to ensure that they take those POCs from that proof of concept into reality and into production. And we've already seen success with our customers in terms of taking real problems and business domains that they have and turning it into production-ready capabilities. So really time to value from an AI perspective is super important, and we see our AI services capabilities is something that's going to support that. Operator: Our next question comes from Matthew Hedberg of RBC Capital Markets. Michael Steven Richards: This is Michael Richards on for Matt. Maybe just double-clicking on that dynamic where customers are assessing the deployment options. Just curious, is that a result of the announcement of the hardware refresh next year where maybe some customers are seeing the transformation you're bringing to the on-prem offering and now it's a bigger decision of whether or not to stay or move to the cloud? And then just any early feedback you've gotten on that decision to have this big refresh? Stephen McMillan: Thanks, Mike, for the question. No, I wouldn't say it's got anything to do with the technology platform that we're coming out with next. I think the technology that we have in place today is actually enabling some of these decisions, both in terms of things like the AI factory, which are available today on the technology stack that we have. It's actually given our customers exactly what they want. They want the choice of deployment. They want to be able to choose where they put the workloads. And we offer our customers a workload first deployment model. So they can choose whether they want to run the workload in the cloud or whether they want to run it on-prem. And so that's the decision-making that our customers are going through. And the fact that we offer those technology capabilities in that hybrid environment is essentially given our customers the choice of deployment. Operator: Our next question comes from Raimo Lenschow of Barclays. Raimo Lenschow: Congrats from me as well on a great quarter. The quick question, Steve, more for you. If you think about the debate of where AI gets that data from, there is a kind of big debate kind of is it coming out of the operational data stores and Oracle, et cetera, is making note more out of like the data warehouses like you guys or more out of the data lakes. Can you speak to that, how you see that playing out? Or is it different use cases will have like a different data foundation? Stephen McMillan: Raimo, you answered the question right at the very end. I think we are actually seeing customers want to get the best out of their data no matter where it sits. That's why we love QueryGrid as our technology to be able to combine all of these different data stores together. So no matter where the data is in the ecosystem, they can take that in a highly governed, reliable way and combine it together, whether it's coming from the data lake or whether it's coming from an enterprise data warehouse, and they can feed that into a language model in a very trusted environment. And that's what we're really delivering and offering to our customers. So I think this is all about -- if you think about AI solutions, they have to be trusted. They have to be ethical. You have to be able to track back through it, and they have to run efficiently and effectively. And that's what the Teradata platform enables our customers to do by combining all of those data sources together. Operator: Our next question comes from Derrick Wood of TD Cowen. James Wood: This is for you, John. You guys had nice outperformance on recurring revenue in Q3. But now for Q4, we had been kind of assuming low single-digit growth implied from your guide last quarter to now low single-digit decline. So was there any kind of pull forward of deals from Q4 into Q3? Or what would you call out on the change in the Q4 growth assumptions? And if I could just squeeze one other in on the cloud [ ARR ] having kind of dropped to 109%. Just remind us what the main drags to this number are? And any color on kind of when and where this could start to stabilize and perhaps move back up? John Ederer: Sure. Yes. Thanks, Derrick. So on the recurring revenue side of things, I think our guidance for the year has actually been fairly consistent on the recurring revenue piece. We did have some variability if you look quarter-to-quarter, and that comes from the upfront portion of the on-premise subscriptions. And so depending on the mix of that in any given quarter, you might have more upfront revenue, which would otherwise throw off your expected linearity. In terms of the net expansion rate, we have seen some consolidation on that. If you look at what we've done historically, and even I think for this year, we're still on track for the same. About 50% of our expansion rate is coming from migration activity and the remainder is coming from expansions with existing customers. And so we see that continuing into Q4. Right now, you're seeing those rates consolidate. And so the net expansion rate is pretty close to what you're seeing for the cloud ARR growth overall. Operator: Our penultimate question comes from Wamsi Mohan of Bank of America. Wamsi Mohan: I think, Steve, you mentioned sort of cost takeout helping free cash flow into next year. Can you help us maybe think about just the absolute sort of OpEx trajectory going from here into '26? How are you thinking about the relative progression from here? And if I could, just -- I know federal is not really very large for you guys, but are you seeing any impact at all from the government shutdown? Stephen McMillan: Yes, I'll take the first -- the last question first, Wamsi. No, we're not seeing any impact to our revenues as a result of the federal shutdown. And then just from an OpEx perspective, clearly, we've taken some fairly major restructuring activities through the year and a lot of them in the kind of June time frame and then into the September time frame. So we are expecting full year impacts and benefits to essentially ultimately, our free cash flow position as we move into 2026. So we are expecting that to amplify. And I think in relation to one of the other questions John hit it on the head, we're expecting that free cash flow growth to come from both our ARR growth expectations for '26 and also the operational efficiency, effectiveness, productivity measures that we've executed in 2025. Operator: And our final question of today comes from Patrick Walravens of Citizens. Patrick Walravens: John, this one is for you, too. And I know this was a good quarter, but if you divide your free cash flow by the revenue, you get like 21%. Not putting a time frame on it, I think where can that free cash flow margin go? John Ederer: Yes. No, it's a good question, and I think it's somewhat related to what Steve just commented on in terms of the operating leverage. And if you look -- if you step back and look at what we did this year with revenue headwinds, we don't guide on operating margin specifically. But I think if you do the math and reverse engineer it, you're going to find that the operating margin has to be pretty flat and comparable with where we were last year. So that means in the face of revenue headwinds, we're still able to capture that margin percentage. And we've done some things from an operational standpoint and a cost efficiency standpoint that will continue to benefit us next year. And so I won't give you a number today, but suffice to say that we've done some things this year that we think set us up well for next year from a margin and a cash flow standpoint. Stephen McMillan: Thanks, Pat, for the question. And thanks, everyone, for joining us today. We are absolutely committed to show what the AI future holds for our customers and what our differentiated platform and capabilities can deliver. As we continue our focus on execution, we're really confident in our outlook, and we are looking forward to updating you all next quarter. Thank you very much. And operator, you can end the call. Operator: Thank you. This concludes today's conference call. You may now all disconnect your lines.
Operator: Good day, and thank you for standing by. Welcome to the Cricut Q3 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jim Suva, Senior Vice President of Finance, Treasurer and Investor Relations. Jim Suva: Thank you, operator, and good afternoon, everyone. Thank you for joining us on Cricut's Third Quarter 2025 Earnings Call. Please note that today's call is being webcast and recorded on the Investor Relations section of the company's website. A replay of the webcast will also be available following today's call. For your reference, accompanying slides used on today's call, along with a supplemental data sheet, have been posted to the Investor Relations section of the company's website, investor.cricut.com. Joining me on the call today are Ashish Arora, Chief Executive Officer; and Kimball Shill, Chief Financial Officer. Today's prepared remarks have been recorded, after which Ashish and Kimball will host live Q&A. Before we begin, we would like to remind everyone that our prepared remarks contain forward-looking statements, and management may make additional forward-looking statements, including statements regarding our strategies, business, expenses, tariffs, capital allocation and results of operations in response to your questions. These statements do not guarantee future performance, and therefore, undue reliance should not be placed upon them. These statements are based on current expectations of the company's management and involve inherent risks and uncertainties, including those identified in the Risk Factors section of Cricut's most recently filed Form 10-K or Form 10-Q that we have filed with the Securities and Exchange Commission. Actual events or results could differ materially. This call also contains time-sensitive information that is accurate only as of the date of this broadcast, November 4, 2025. Cricut assumes no obligation to update any forward-looking projection that may be made in today's release or call. I will now turn the call over to Ashish. Ashish Arora: Thank you, Jim. We posted solid results in Q3. Sales grew 2%, operating income grew 114%, EPS grew 100% and paid subscribers grew 6% year-on-year. While we are proud of our Q3 results, which represented our second consecutive quarter of positive year-on-year sales growth, we have more work to do, especially on engagement, international sales and accessories and materials. As I mentioned previously, we are relentlessly focused on increasing our speed of execution and are accelerating investments that will help drive future revenue growth. We are continuing to lean into these investments even as we navigate the uncertainty introduced by tariffs and their potential impact on consumer discretionary spending. These accelerated investments include hardware product development, materials, engagement and marketing, including increased awareness in our international markets. Thus far in 2025, we have launched 2 new cutting machines, more Cricut Value materials and several improved engagement experiences, which also include AI. We need to continue growing our top line to satisfy the expectations of our team and our shareholders. We have conviction in what we need to do to return to sustainable growth. We are focused on attracting more new users to buy our connected machines by addressing affordability and ease of use while also increasing marketing and awareness. We must ultimately reverse weakening engagement trends and reinject enthusiasm among our users by enhancing and simplifying the making process. We are committed to taking back our share in accessories and materials. I will now talk about 4 priorities: new user acquisition, user engagement, subscriptions and accessories and materials. We continue to focus on new user acquisition and engagement growth on our platform, which ultimately drives our monetization flywheel. In Q3, we made 2 adjustments to our marketing strategy that are yielding good results. First, target expansion. We strategically broadened our target audience to reach users with greater disposable income and time, 2 of our major purchase barriers. We are seeing a significantly higher engagement rate with our ads from this new expanded group. Second, increased marketing investment. We directed increased spend into the channels that consistently deliver high engagement and high ROI for the brand, and we are seeing a more than 20% increase in overall marketing engagement year-over-year. These efforts are leading to an increase in searches for What is Cricut on Google, which we have historically watched as a leading indicator. Our sell out units continue to be encouraging with sell out units up in North America and globally in Q3 and year-to-date. Sell out units were also up year-over-year in the recent October Amazon Prime Day. Engagement erosion continues to moderate as we held active users about flat for the year. In Q3, we ended with just under 5.9 million active users, about flat compared to Q3 2024. 90-day engaged users who cut during the quarter declined 3% year-on-year. We are on track to meet our goal of dramatically simplifying the user experience by the end of 2025 for our most popular project types or use cases. The use cases we are developing this year cover a large portion of project types cut each year. For each use case, we guide users by first having them choose what they want to make, for example, an iron-on T-shirt. Our platform uses AI image selection, templates and guided step-by-step flows. The simplified interface exposes only relevant tools and automates complex manual decisions such as image sizing and placement on a youth medium T-shirt. In July, we launched in beta guided flows for vinyl decals and iron-on T-shirts, 2 of our most popular use cases. We have since released them into production during Q3 and their reception has been positive. At the end of Q3, we launched our next 2 most popular use cases of folded cards and cardstock cut-outs for beta testing. We continued our AI investments in Q3 by moving the Create AI feature from beta to production for Cricut Access subscribers with positive early results. A major advantage of this feature is that the generated images are ready to cut, which is not necessarily the case with images sourced elsewhere, thus dramatically improving the likelihood of user success. Finally, we brought in more visitors to Design Space via our engagement marketing campaign in Q3 than in any prior quarter. Despite the continued pressure on our engagement metrics, we are confident in our efforts to simplify our design experience by assisting users based on their project intent, continuing to grow the number of images, fonts and editable templates available to users, most notably for Cricut Access subscribers and improving our capabilities to bring users back to the platform to start or resume a project. In Q3, our paid subscribers increased 6% year-over-year to just over 3 million. Paid subscribers continue to be a big positive for us and increased 166,000 year-on-year in Q3. We are also seeing positive trends on win-backs, where our promotional offers are driving increased sign-ups from prior subscribers. We have a rich road map to continually increase the value proposition for subscribers. As I previously mentioned, we launched Create AI for our Cricut Access subscribers, and we will continue to introduce more AI-driven features. Our goal is to make it incredibly compelling to become and remain a subscriber to leverage our content and software tools. Accessories and materials sales decreased 17% year-on-year in Q3. Over the last several years, we have lost ground to competition and material types where there are low barriers to entry. We continue to see this competitive pressure increase, manifesting in white label brands and retailers as well as new entrants in online marketplaces and in retail. We have embraced the challenge of providing refreshed and cost-competitive materials and accessories offerings. As these offerings continue to roll out over the coming months, we intend to reclaim market share and by doing so, enhance the making experience of our users. We are focused on having the right product configurations in the appropriate channels, so Cricut materials are the obvious choice when users want to make. In Q3, we launched several new project materials, including printable temporary tattoos and magnet sheets. In addition to printables, we also added new finishes and types of iron-on, including flocked, color pop, 3D and puff. We also continue in our relentless focus to drive cost out of this business, including optimizing country of origin by material type. While we have diversified most of our finished goods supply base, largely outside of China over the last several years, we continue to manufacture in several countries in Asia. We believe we have a competitive advantage in the diversity of our supply chain configuration relative to the competition. We remain nimble as we navigate unprecedented tariff uncertainty. Recall in first half 2024, we launched the Cricut Value line of materials. We continue to accelerate this business, launching additional SKUs and material types. We continue to be optimistic about this product line as we see it perform well, but it is still a small portion of our portfolio. We have additional innovation, products and cost reductions coming in the quarters ahead. Our teams did a great job executing during the October Amazon Prime Day, where we saw positive year-on-year growth for accessories and materials. Consistent with prior comments, we will continue our promotional cadence in this category to remain price competitive for consumers with a focus on winning share. We are intensely focused on the overall customer experience. It's our fundamental belief that when we give people more reasons and inspiration to make things easily and affordably, we will see a lift in materials consumption. We are driven to continue to innovate while exhibiting both long-term focus and current discipline. With that, I will turn the call over to Kimball. Kimball Shill: Thank you, Ashish, and welcome, everyone. In the third quarter, we delivered revenue of $170.4 million, a 2% increase compared to the prior year. We generated $20.5 million in net income or 12% of total sales in Q3. Breaking revenue down further, Q3 2025 revenue from platform was $82.8 million, up 7% year-on-year. We ended Q3 with just over 3 million paid subscribers, up 6% year-on-year. We continue to expect paid subscribers to be up in Q4 and for the full year. Platform revenue growth was primarily driven by higher paid subscribers year-on-year. ARPU increased 4% to $54.96 from $52.86 a year ago. Q3 revenue from products was $87.7 million, down 3% year-on-year. Connected machines revenue increased 12% due to both higher machine unit sales and higher average selling prices, helped by our newer machine launches and fewer legacy machines. As Ashish mentioned, machine sell out units in North America and globally were up in Q3 and continue to be positive year-to-date. We don't have perfect coverage for sell out data in all channels, so treat this as directional. Accessories and materials revenue decreased 17% year-on-year. Recall, last quarter, we had the opportunity to accelerate shipments of accessories and materials, resulting in 12% year-on-year revenue growth in Q2. If you average these, normalized accessories and materials revenue continued to decline. In terms of geographic breakdown, international revenue for the quarter was $40.5 million, an increase of 5% compared to Q3 2024 and included about 4% of foreign exchange benefit with platform up and products down, similar to last quarter. As a percentage of total revenue, international revenue was 24% for Q3 2025 compared with 23% of total revenue in Q3 2024. We see positive momentum in our U.K. and Western European businesses where we continue to invest in sales and marketing, which sets us up well for peak holiday season. We are also starting to see green shoots in our nascent India and Japan regions with expanding distribution and demand. We are also pleased that Australia is stabilizing in the second half of the year through increased promotions and demand generation. We are increasing sales and marketing resources to further fuel momentum in our international markets. We ended the quarter with over 3 million paid subscribers, up 6% or 166,000 from Q3 2024 and down 6,000 or less than 1% sequentially, partially due to seasonality and the introduction of a new POS feature where we don't count paid subscribers in the metric. Recall, we have highlighted previously that Q3 paid subscribers could be flat to down. Platform continues to be a bright spot for us, and Ashish detailed our efforts that are gaining traction in this area. Moving to gross margin. Total gross margin in Q3 was 55.2%, an increase from 46.1% in Q3 2024. The improvement reflects higher product gross margins and a higher amount of subscription revenue as a percentage of total revenue with higher platform margins. Breaking gross margin down further, gross margin from platform in Q3 was 89.2% compared to 87.1% a year ago. The increase in platform gross margin for the quarter was primarily related to lower amortization of software development costs. Gross margin from products was 23.1% compared to 10.7% in Q3 a year ago. The increase in gross margin for the quarter was primarily due to less reserves compared to last year, the selling of previously reserved excess and obsolete products and a more favorable mix toward newer products. The uplift from these items more than offset our promotional activities. Total operating expenses for the quarter were $71.4 million and included $7.1 million in stock-based compensation. Total operating expenses increased 7% from $66.8 million in Q3 2024. Recall, we increased our marketing efforts during 2024 by $20 million and continued at a similar rate through Q3. We will continue to be data-driven in our future marketing spend and expect to lean in through the holiday season even as we navigate the uncertainty from tariffs and potential impact on consumer spending. We will continue our physical products and platform investments to drive future growth as we manage our business through a long-term lens. Operating income for the quarter was $22.7 million or 13.3% of revenue compared to $10.6 million or 6.3% of revenue in Q3 last year and benefited from the mix of higher sales from platform and higher product margins, which we previously mentioned. The tax rate in Q3 2025 of 20% was slightly higher than the 18.9% in Q3 2024, primarily due to the difference from a decrease in stock-based compensation attributable to a lower stock price upon vesting. For the quarter, net income was $20.5 million or $0.10 per diluted share compared to $11.5 million or $0.05 per diluted share in Q3 2024. Turning now to balance sheet and cash flow. We continue to generate healthy cash flow on an annual basis, which funds inventory needs and investments for long-term growth. In Q3, we generated $20 million of cash from operations compared to $70 million a year ago. We ended Q3 with cash and cash equivalents of $207 million and remained debt-free. During Q3, we used $2.3 million of cash to repurchase 441,000 shares of our stock, resulting in $46.9 million remaining on our $50 million authorized stock repurchase program, which the Board replenished in May. In July, we paid approximately $181 million in dividends with a special dividend of $0.75 per share plus a recurring semiannual dividend of $0.10 per share. The Board of Directors recently authorized a recurring semiannual dividend of $0.10 per share for shareholders of record on January 6, 2026, and payable on January 20, 2026. Now on to our outlook. Recall, we do not give detailed quarterly or annual guidance, but we do want to offer some color on our outlook. We continue to expect platform sales to increase sequentially year-on-year in Q4 and for the full year on paid subscriber growth. In Q4, higher tariff costs will have a negative impact on margins, and this headwind will accelerate in 2026. Also recall, Q4 is our most promotional quarter of the year. We expect to be profitable in Q4 and generate significant positive cash flow for the year. While tariffs are the reality of today's world, our teams continue to be proactive and nimble with how we execute our strategy as we continue our investments to position the company for growth. With that, I'll turn the call over to the operator for questions. Operator: [Operator Instructions] Our first question today is from Erik Woodring from Morgan Stanley. Erik Woodring: Ashish, I appreciate all the commentary you provided on the different ways you're trying to improve engagement, reaccelerate sell-through in parts of your business, et cetera. If you take a step back, what do the kind of spending trends in your business in 3Q tell you about the health of spending kind of across the different parts of the category you play in? And how does that inform your view on revenue seasonality for 4Q when we think about historically revenues up about 40% sequentially in 4Q? Are those spending trends conducive of growth better than that, worse than that? Would love if you could just put that all kind of into context and any quantification would be helpful. Ashish Arora: Thanks, Erik, for the question. Let me -- I think there are 2 parts to your question. So let me kind of address the first one, and then I'll let Kimball talk to some of the other aspects of your question. So I think overall, from an innovation standpoint and across the 3 -- across various categories, as we've indicated, we will continue -- in fact, we have ramped up innovation in products, which includes hardware in existing and some new categories. And that -- we expect that investment to continue as we go through the next 12 to 18 months and even longer for that matter. The second is on materials. So again, we will see -- we've taken a very proactive stance on that, and you'll see a tremendous amount of innovation, cost reductions and excitement there. And most of all, on the platform side, which basically is fuels engagement and our subscriptions offering, we will see we've had a higher level of investment, and we see that investment sustained over a period of time. And the last area I would highlight is -- the last 2 areas are international and marketing. Both of them basically are -- were a big focus this year and they will continue to be our focus. All of this is with the lens of we are a growth company. While the last couple of years have been tough, we're very excited about the business, and we think that there's a tremendous amount of innovation to be done and to further penetrate our SAM. So we expect that as we said, with a longer-term lens as we reposition and drive the company back for growth. Kimball, you may want to add more color to that. Kimball Shill: Yes. So Erik, thanks for the question. I would point out that our sell out of machines continues to be up in North America and internationally for the quarter and year-to-date. So we look to that as evidence that our marketing efforts are working and engaging consumers. We do acknowledge we still have pressure in our accessories and materials business. There was a little bit of noise because we had an opportunity in Q2 to accelerate some demand. But if you average Q2 and Q3, that business remained under pressure. As Ashish mentioned, I think the teams have done a great job of driving cost out of that business and introducing new products. We talked about our value line materials, for example, that compete well specifically in online marketplaces. And I think we have more opportunity there, as Ashish mentioned. There is an element of engagement with consumers that we ultimately need to get more consumers in the door and we need to get them cutting more frequently to also help turn the tide on overall engagement. And Ashish talked about some of the things that we're doing in that area. In terms of holiday and how we see consumers showing up, we're pretty encouraged by what we saw with October Prime Day and some parallel channel promotions that we had where we saw pickup in units and in revenue across those promotions. I would add one cautionary note is we do regular consumer surveys. And for the first time in our internal surveys, we're seeing our consumers express concern about how tariffs may impact their family household spending. So we think we're in a good position for holiday. We've got great marketing in place. We have a great promotional calendar lined up. we're excited about it, and we think we've got appropriate channel inventory across the board, but we are waiting to see how consumers show up in the back half of the quarter. Ashish Arora: And let me just kind of add just a slightly macro level picture to that, right? As we've continued to research, we have a strong conviction that our market is significantly more than we penetrated it. The macro -- the secular trends have not changed. Users -- people -- consumers want to personalize. They want to be creative. And if you look at Google trends on what is Cricut, we see significant interest in the brand year-on-year, especially with all the efforts of marketing. And finally, we believe that a lot of our investments that we are making, both from an innovation perspective and from a platform perspective, we believe that, that opportunity is in making the platform and the product incredibly simple and how do we reduce friction. And that's what the team has been actively focused on. And again, we're very excited and convinced that we are working on the right things. Kimball Shill: And then I'll just add one more comment relative to Q4. Recall that there's some seasonality to engagement and Q4 tends to be the highest engagement quarter. We're also, as I mentioned, seeing year-to-date sales out continue to be up. We think that bodes well for subscriber growth in Q4 and in Q1 as we look forward to that. Erik Woodring: Okay. Perfect. I think I got all of that. And then maybe, Kimball, obviously, here at the end of your prepared remarks, you alluded to higher tariff costs negatively impacting margins that will accelerate in 4Q in 2026. Can you unpack exactly what that means? And any financial framework you can help us with? I'm just going back to your comments last quarter where you materially outperformed margins this quarter. So just trying to get a financial framework for how to think about gross margins. Is that up or down year-over-year? Just anything that can help us kind of narrow the range of where we should be? Kimball Shill: Yes. Thanks, Erik. So let me break my answer in 2 parts. First, I'll talk about some unique helps to margin this year that don't necessarily carry over into next year, and then I'll address your question on tariffs. So there's a number of things where this year, for example, there's an absence of reserves on excess inventory that was a big part of the story last year. And so that helps the comparison. And in conjunction with that, we've also done a good job of monetizing excess inventory this year and some of the easier chunks of that inventory to monetize will be exhausted as we kind of exit Q4. And so that won't necessarily help as we move through next year. And then there has been a mix shift towards newer products, which has also benefited margins this year. So there have been some things that have really helped margin. And then as we look to next year, as I mentioned in my comments, we're seeing some of that impact in Q4. We'll see that accelerate next year. And it's still a bit of a dynamic situation. If you recall, we started seeing incremental tariffs in April, then they picked up in August and they're changing with announcement as late as last week. So a bit of a moving target. But in terms of a framework, the way we think about it is a significant portion of our revenue and profit comes from platform. Platform is not impacted by tariffs at all. And then if you look at our trailing 12 months of cost of goods sold, about 1/4 of that is international. That's not impacted by tariffs, but 75% of that is. And we've got exposure to 4 Asian countries primarily: Malaysia, South Korea, Thailand and some finished goods still from China. So if you think about an average tariff rate of around 20% and how you apply that across that subset of cost of goods sold I mentioned. And then think about the timing of inventory turns. So even though we've been importing all along throughout the year, getting ready for holiday and building inventory at this point for next year, we pay those tariffs as it comes in, but it takes time for those tariffs to flow through the P&L, which is why we're just seeing really impact starting in Q4 and accelerating through '26. Erik Woodring: Okay. I appreciate all that color. And maybe just one quick clarification, Kimball, on that. The average tariff rate of 20%, that just takes into account the decrease in IEEPA tariff in China last week. I just want to make sure that just confirm that. Kimball Shill: Yes. I mean that's our best estimate based on what's changing because South Korea got an announcement next week as well as China. So we haven't seen anything official other than what in the press. Operator: Our next call is from Michael Cadiz with Citi. Michael Cadiz: This is Mike Cadiz for Asiya Merchant at Citi. Your Create AI offering is very interesting. Would you mind helping us understand your current AI strategy? And when [indiscernible] would be -- it may be challenging, I think, in gaining paid subscribers because what if those users can then get those AI images for free. So if you can help me bridge that gap, that will be great. Kimball Shill: Mike, thanks for the question. So we're actually pretty excited about AI. We believe it's complementary to our content strategy overall. And I'll give you a couple of examples. And you called out Create AI, which is our generative AI offering that we had in beta in Q2 and has since moved into production. And it's optimized to produce images that are ready to cut. And so as you call out, consumers can go and generate images elsewhere, which may work well on a printer because they're bitmap, but they're not -- we need them in vector form for a consumer to be able to cut them and use and make a project effectively. And so we do think we have an advantage there. We have seen in limited data at this point that it actually is helping us bring in new subscribers. But it's not the only where we're using AI in our platform. We also have embedded in our search algorithm so that we have our large library of images, and we're using that to help serve content to users that match their interest, their skill set and their project type. And we continue to learn and get better, leveraging AI in there. We also are using AI to accelerate efficiency and speed in our software development. I think it is worth calling out that as we see adoption pick up, especially in the generative AI part of the platform that over time, we could see some pressure on platform margins. Ashish Arora: Yes. So Michael, this is Ashish. Let me just add a little bit more color and reinforce a couple of points that Kimball has made. So one is we term Create AI as a user-facing feature. And as Kimball pointed out, what we specialize in is vector-based images as opposed to raster images that are optimized for cutting, right? So Create AI is a tool that we offer to consumers that basically allows them to generate specifically those types of images that are optimized for vector graphics and cutting. The second is in addition to those tools that are to generate images, we have a lot of complementary tools like [indiscernible] and Google, et cetera, that do require subscription today. And then on top of that, we are using AI to help users discover content based on the images they put, how do you find them complementary images. So AI is being basically leveraged across many, many parts of our system, including from search technologies to find similar or complementary images to how AI is supplementing how people work with fonts and all of that stuff. So we think AI is definitely -- it's a very rapidly evolving market. We are embracing that, and we think it's ultimately a net positive for us as ultimately, we want to be the platform where people come to exercise their creativity. So we're really excited about what the team is doing across the board and AI. Operator: And our next question comes from Adrienne Yih with Barclays. Angus Kelleher-Ferguson: This is Angus Kelleher on for Adrienne Yih. I have a couple of quick questions regarding retailer partners. So my first question is about channel inventory. Does it feel balanced going into holiday? And what steps are you taking to avoid channel stuffing or demand pull forward after Q2? And has that Q2 pull-in been fully absorbed? And then I have a quick follow-up. Ashish Arora: Angus, thanks for the question. We actually feel like we're in a pretty good position overall from channel inventory going into holiday. I think there are pockets where we'd love to see more. But in terms of the new normal that has evolved post-COVID, I think we're well positioned. I would call out relative to the pull-in demand we saw in Q2, and that was specifically around accessories and materials that if you look at -- I mean, we were down in the quarter in Q3 on that. So if you average Q2 and Q3, that's still down. At the end of the day, I think it varies a little bit by channel. But I think overall, we're in a very good position. We see enthusiasm with our retail partners. I've already expressed the one concern we have of seeing how tariffs may impact consumers. But early signs based on Prime Day and parallel promotion we can in channel, we're optimistic about Q4, waiting to see how consumers show up for the rest of holiday. Angus Kelleher-Ferguson: Great. Second question, do you think you could share any early thoughts on margins for 2026? It's sort of a follow-up to Erik's question, but anything directional you could share related to and beyond tariffs and pricing strategy, maybe just how you're looking at marketing investment and how it all comes together to affect operating margins in 2026? Ashish Arora: So I'm going to be careful on forward-looking commentary because with tariffs, it is a bit of a moving target, but let me share kind of how we're thinking about it. We do expect margin pressure next year because of tariffs. And really how we think about dealing with that from a consumer affordability standpoint is we will continue to manage the mix of price and promotional strategies so that we can try to do as much as we can to maintain affordability for our consumers. We will continue to drive cost out of the supply chain, including getting participation from our supply partners to help us offset some of these tariff impacts. But at the end of the day, there will be some absorption to gross margin as we move through '26 on tariffs. Operator: I'm showing no further questions at this time. So I'd now like to turn it back to Jim Suva for closing remarks. Jim Suva: Thank you, Therese, and thank you, everyone, for joining us this afternoon. We will be meeting with investors at the Barclays Investor Conference on Thursday, December 4 in New York City and the ROTH MKM Investor Conference, Thursday, December 11 in Deer Valley, Utah. We hope to see you there. If you have additional questions, please e-mail me at jsuva@cricut.com. This now concludes this earnings call, and you may now disconnect. Thank you.
Operator: " Kurt Gustafson: " Matthew Foehr: " Michael Almisry: " Leerink Partners LLC, Research Division Unknown Analyst: " Alexander Xenakis: " Truist Securities | Matthew Hewitt: " Craig-Hallum Capital Group LLC, Research Division Brendan Smith: " TD Cowen, Research Division Unknown Analyst: " Operator: Good afternoon, and welcome to OmniAb's Third Quarter 2025 Financial Results and Business Update Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. And I would now like to turn the call over to Kurt Gustafson, OmniAb's Chief Financial Officer. You may begin. Kurt Gustafson: Thank you, operator, and good afternoon, everyone. This is Kurt Gustafson, OmniAb's Chief Financial Officer, and thank you all for joining our third quarter 2025 financial results conference call. There are slides to accompany today's prepared remarks, and they're available in the Investors section of our website at omniab.com. Before we begin, I'd like to remind listeners that comments made during this call by OmniAb's management will include forward-looking statements within the meaning of the federal securities laws. These forward-looking statements involve risks and uncertainties that could cause actual results to be materially different from any anticipated results. These forward-looking statements are qualified by the cautionary statements contained in today's press release and our SEC filings. Importantly, this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, today, November 4, 2025. Except as required by law, OmniAb undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call. Joining me this afternoon is Matt Foehr, OmniAb's President and CEO. During today's call, we will provide highlights on the company's business and operations, partner and technology updates as well as our recent financial results and outlook. At the conclusion of the prepared remarks, we'll open the call to questions. And with that, let me turn the call over to Matt. Matthew Foehr: Thanks, Kurt. Good afternoon, everyone, and thanks for joining our Q3 call. Starting now with Slide #4. We continue to have nice deal flow throughout the third quarter, and the number of new program additions this year is far outpacing last year. Our program adds as of the end of Q3 already equaled the program adds we had in all of 2024. We've also grown and diversified our base of active partners, reaching a record high level, now exceeding 100. We see this as further validation of our differentiated proprietary technology platforms and their proven value to enable the discovery of next-generation therapeutics for our partners. We're building the foundational momentum for our recently launched xPloration partner access program, which is designed to put our high-throughput single B-cell screening platform in the hands of our partners. The xPloration sales funnel continues to grow, generating strong interest and new opportunities for us. And as the latest example of our commitment to pioneering innovations and sector leadership, in December, we'll be launching a brand-new technology to add to our stack. We're excited to share a little preview today of OmniUltra, which is the first transgenic chicken that produces cow-like antibodies with ultra-long CDRH3s. OmniUltra has the potential to open new markets and new business opportunities for us and to expand our reach into enabling the discovery of novel peptide therapeutics. I'll provide more on this technology in a moment. While we continue to grow the number of partners and programs, we also realigned staffing levels in Q3 and further reduced operating expenses to drive efficiencies in our lean yet scalable operating model. In addition, we enhanced our financial flexibility and strengthened our balance sheet with the closing of a $30 million private placement in late August. I want to welcome our new shareholders and thank the existing shareholders who participated in the transaction for their support. Moving to a review of our key business metrics now starting with Slide #5. We ended Q3 with 104 active partners. During the third quarter, we've highlighted that we completed new license agreements with A*Star and the University of Leeds. The distribution of our active partners by type, including discovery, commercial and academic continues to hold steady. And the same holds true for our distribution of partners on a geographic basis with just over half of our partners based here in the U.S. And I note that our international reach has continued to grow as we make a concerted effort to expand and diversify our partnership base. With regard to new partnerships, increasingly, we also think there are innovative ways in which we can create value in a variety of time horizons, leveraging our technologies or assets that come out of our novel technology development and validation work. On Slide 6, the number of Active Programs leveraging our technologies increased to 399 as of the end of Q3. This includes a net addition of 36 programs year-to-date, of which 18 were added during the third quarter as we continued to see strong program addition momentum. During the third quarter, there were 6 programs that were terminated. And as I've said before, and I say often, program attrition is a normal part of our business and will continue to be due to shifts in partner priorities as well as budgetary and technical factors at our partners. The graphics on Slide #7 highlight growth of our post-discovery stage programs that are in our portfolio as well as the advancement of these programs into and through clinical development. The number of programs in the post-discovery stage increased by 15% year-over-year. A number of new programs progressed to the preclinical stage of development. And in Q3, one program moved to the registration phase. These 61 post-discovery stage programs have contracted remaining potential milestones to OmniAb of approximately $1.3 billion, including $700 million from small molecule ion channel programs. Slide 8 shows the number of active clinical programs and approved products, which totaled 32 at the end of Q3. As of September 30, 2 new partner programs had entered the clinic in the year and 2 came out. We are proud to report that subsequent to quarter end, the first OmnidAb -derived program entered into human clinical trials. As we launched the OmnidAb single-domain discovery platform less than 2 years ago, this is a significant milestone for a new technology, especially within such a short period of time. We also received confirmation that another bispecific antibody derived from our rodent platforms entered human clinical trials just last week. We'll talk more about both of those new clinical programs after our partners have disclosed more details publicly. Overall, given our latest discussions with our partners and our line of sight into their work, we see the potential for a total of 5 new entries into clinical development for novel OmniAb-derived programs this year. This is at the lower end of our previous range of projected clinical starts, primarily resulting from select partners simply shifting timing of clinical program initiations into early 2026. Also in regard to clinical programs, I note that we have multiple partners who will be presenting data at the ASH Annual Meeting in early December. So we're looking forward to that as well. Turning now to Slide 9. Here, we've highlighted select recent updates for partner programs that are leveraging our technologies. At the Annual Meeting of the American Thyroid Association, Immunovant presented 6-month durability data from its Graves' disease study showing sustained remissions with batoclimab. Their next-generation candidate, IMVT-1402, is advancing in 2 potentially registrational Phase III trials in Graves' disease with top line results expected in 2027. Moving to the right on this slide at ESMO, Arcus Biosciences reported median overall survival of 26.7 months from its Phase 2 EDGE gastric trial. The study combines domvanalimab with OmniAb-derived zimberelimab and chemotherapy in advanced gastric cancer, clearly reinforcing the potential for this treatment approach. Salubris Bio announced that China's NMPA accepted its NDA for SAL003, which is a recombinant fully human anti-PCSK9 antibody for dyslipidemia. So this program moved from our Phase III bucket to the registration stage in Q3. And lastly, Rondo Therapeutics abstract on its first-in-class CD28 and Nectin-4 bispecific antibody was accepted for presentation at the Society for Immunotherapy of Cancer Meeting, which is taking place this week. Turning now to Slide 10. Here, we highlight our clinical and commercial stage partner pipeline for Active Programs that carry downstream economics to OmniAb. Placement in this graphic is based on a program's most advanced status in any geography or indication. Our partners continue to advance OmniAb-derived antibodies into and through the clinic. And this latest update shows Salubris Bio's SAL003 moving to the registration phase, as I just mentioned. On Slide #11, I'd like to take just a quick moment to highlight progress with our xPloration partner access program. The early feedback we're getting from partners using the instrument is that xPloration is performing extremely well and that it's driving efficiencies in discovery workflows. We're really pleased with the response so far as xPloration continues to gain traction since its launch in Q2 with a strong demand for lab demos from partners throughout Q3. The efficiency and ease of use of xPloration are significant differentiators. This platform complements our core technology licensing business as we expect xPloration to be accretive to earnings and cash flow in both the short and the long term. As we grow our installed base of instruments, we expect to broaden our revenue channels with recurring single-use consumable sales, annual subscription services for software and maintenance contracts. Ultimately, we're clearly seeing that xPloration deepens engagement with partners, has the potential to drive new program growth and showcases OmniAb's innovation in integrating automation, AI-powered methods and discovery. Turning to Slide #12. Our internal innovation engine continues to strengthen our differentiation, especially with our growing suite of genetically engineered chicken-based discovery platforms. We've had an established history of pioneering the development of advanced discovery technologies that the industry needs. We talk a lot about the advantages that a chicken immunization host presents for novel molecule discovery as about half of all therapeutic targets are more than 90% conserved in mammals. So using a chicken as an immunization host species for discovery can be really important and really valuable in many instances. Our OmniChicken technology shown on the lower left of this slide remains the world's only validated humanized transgenic chicken for antibody discovery. Leveraging the evolutionary distance between birds and mammals, OmniChicken delivers robust immune responses and generates highly diverse antibody repertoires. This platform has become foundational to many of our partners' discovery pipelines. Building upon this, OmniClic incorporated a fixed light chain design, enabling seamless combinations of antibodies for bispecific and multi-specific applications. And OmnidAb, our single-domain antibody framework extends the utility of chicken-derived antibodies into small, stable therapeutic formats and opens up opportunities across a range of modalities. Molecules from OmnidAb are well suited for modular and multi-specific architectures while maintaining advantages in terms of manufacturability and stability. And as I mentioned, OmnidAb was launched less than 2 years ago, and it's attracted a lot of new partners and already has generated a program that has entered the clinic. And now as the latest entry in this stack, in December, we're launching our newest transgenic chicken platform, which we are branding as OmniUltra. Moving to Slide #13. OmniUltra represents the next evolution of discovery tools as it's the first and only transgenic chicken producing ultra-long CDRH3s, which is a structural feature of antibodies typically seen only in cows. Put another way, OmniUltra chickens are engineered to create antibodies with the physical characteristics that are found in cows, but with human features to make them suitable as human therapeutics. These ultra-long CDRH3s are designed to enable antibodies to reach unique heat or recess binding pockets and previously inaccessible epitopes, potentially unveiling therapeutic opportunities beyond the reach of conventional antibodies or conventional modalities. What's especially exciting is the potential ability of these ultra-long CDRh3s to be isolated as novel or autonomous binding fragments known as Pico bodies, which are the smallest known functional antibody fragment, roughly 1/3 the size of an antibody. Pico bodies could open up entirely new therapeutic applications and modalities. Turning now to Slide 14. So OmniUltra is not only expanding the boundaries of antibody discovery technologies, but also potentially opens up entirely new opportunities for us in peptide-based therapeutics. Along with its novel architecture, OmniUltra is engineered for in vivo optimization, allowing for the generation of molecules to essentially be preselected for specificity, affinity and structural stability. This process enhances the discovery of antibodies with unique binding domains with the potential to target previously inaccessible epitopes. And importantly, as I said, OmniUltra is also leverageable for peptide therapeutic discovery. Now peptides are obviously a class of molecules that have seen a substantial increase in attention by the industry, in large part as a result of the GLP-1 drugs that have been so important to patients and to the industry globally. That's led to significant growth and investment around peptide therapeutics from a discovery, development and downstream capacity and infrastructure perspective. And that's part of why we think OmniUltra is really well timed. Unlike traditional peptide discovery methods, OmniUltra uses a transgenic chicken host to biologically produce optimized structured peptides on a validated scaffold. This capability could establish new classes of biologically derived therapeutics with potential applications across modalities. OmniUltra highlights our team's innovation leadership and extends our platform advantage into new therapeutic spaces, further differentiating our technology platform and reinforcing our long-term growth potential. Slide 15 sets the stage for OmniUltra's formal launch, which is planned to be at the Antibody Engineering & Therapeutics Conference down in San Diego next month. At AET, we have 2 podium presentations and 2 poster presentations. There's a lot more to say about OmniUltra beyond today's little preview. So while at AET, we'll be holding an investor webcast related to the OmniUltra technology, discuss the potential market use and applications and review the potential business impact of this highly innovative and pioneering technology. The tech validation work that we completed with OmniUltra included a broad array of therapeutic targets, and we will touch on that work as well. We'll be announcing details of the webcast as we get closer to the event. But for now, please mark your calendars for Monday, December 15, at 5:00 p.m. Eastern Time. Moving now to Slide 16. We're excited about the prospects for OmniUltra as it significantly increases our potential universe of partners into the peptide discovery space and also obviously opens up new doors and opportunities in the antibody discovery space as well. As most of those who follow us know, our technology license deals generally have several components, including collaboration and service revenue, milestone payments and royalties upon commercialization of a program. I want to highlight that OmniUltra builds on our established transgenic chicken capabilities, which require a service contract as our partners cannot perform the discovery service work on their own. And we think the new OmniUltra platform can drive higher collaboration and service revenue in the near term. And with that, let me turn the call over to Kurt for a discussion of our Q3 financials. Kurt? Kurt Gustafson: Thank you, Matt. So on Slide 18, I'll start with a review of revenue. For the third quarter of 2025, we reported revenue of $2.2 million, and this compares to $4.2 million for the same period in 2024. The decrease was primarily related to a reduction in milestones achieved and lower service revenue. Service revenue declined primarily due to the completion of a couple of small molecule ion channel programs earlier this year. And as a small offset to this decrease, the 2025 third quarter included xPloration revenue derived from the sale of consumables and a modest increase in royalty revenue. On Slide 19, we show our cost and operating expense for the third quarter of 2025, which decreased to $20.4 million from $23.9 million for the prior year period. We saw decreases in both R&D and G&A expenses compared with last year, and this quarter also included a nonrecurring charge of approximately $800,000 related to a headcount reduction we made earlier in the quarter. Turning to Slide 20, I'll focus on a few of the operating expense line items, starting with R&D expense, which decreased to $10.4 million from $13.3 million in the year ago period, primarily related to lower headcount and stock-based compensation as well as a decrease in external expenses due to the completion of certain ion channel programs earlier this year. G&A expense was $6.8 million for the third quarter of 2025 compared with $7.1 million for the same period in 2024, with the decrease primarily due to lower legal fees and stock-based compensation expense. Net loss for the third quarter of 2025 was $16.5 million or $0.14 per share compared to a net loss of $16.4 million or $0.16 per share for the same period in 2024. On Slide 21, we have our balance sheet as of September 30, 2025. We ended the quarter with $59.5 million in cash. And as Matt mentioned, during the quarter, we completed a $30 million private placement of common stock, which netted the company $28 million. I'll conclude with Slide 22 with a discussion of our 2025 financial guidance. We've recently received information that a few of the milestones that we were expecting in the second half of 2025 will now be pushed to 2026. We also identified further efficiencies in our operating structure. And as a result, we're updating our guidance for this year. We now expect that 2025 revenue will be between $18 million and $22 million and operating expense will be between $82 million and $86 million. As a reminder, approximately 40% of our operating expense is noncash, mostly due to stock-based compensation and the amortization of intangibles, primarily from historical company or technology acquisitions. We continue to expect that our cash used in 2025 will be lower than the cash used in 2024, excluding financings in both years. and we expect our year-end cash balance to be between $52 million and $56 million. And finally, our guidance on the tax rate remains unchanged at approximately 0% due to a valuation allowance. And with that, I'd like to open up the call for questions. Operator? Operator: [Operator Instructions] Your first question is from Puneet Souda from Leerink. Michael Almisry: You have Micheal Sonntag on for Puneet. Congrats on the quarter. I just want to start my first question on the private placement. I was curious if you could offer some color on what motivated the timing of the placement and if you have any thoughts on the cash runway this now gives you if you expect this to get you to where you're consistently cash flow breakeven? Kurt Gustafson: Yes. Maybe I'll provide some additional or some thoughts and then maybe Matt can jump in there. These are conversations that we have with our Board. We took a look at our forecast and decided it was the right time to sort of bolster the balance sheet. Markets seem to start becoming a little bit more favorable. And so we took that opportunity to strengthen the balance sheet. We don't provide any sort of long-term guidance. I kind of gave you the guidance that we have for this year with regards to cash burn and cash balance. But I think this puts us in a good position. I feel like the company is now well capitalized. I don't know, Matt, anything else to add? Matthew Foehr: Yes. I mean I'll add as well. Again, this provides us a level of flexibility for the business and made sense. And as Kurt said, we think the business is well capitalized. As we look out into the coming years, we'll provide further guidance, but we feel good about where we are. Michael Almisry: Okay. Great. And then on xPloration, I was wondering if you could provide some, I guess, additional color on customer conversations. What kind of customers in your partner base are you seeing some more interest? And if you have any thoughts on, I guess, bookings or order timelines? Any color you can provide there would be helpful. Matthew Foehr: Yes. Yes, Michael. Yes, it's been very busy on the xPloration front and interest has been very strong. I would say, generally, now we've got obviously a partner base or a partner universe now of 104 partners. It is definitely the higher tier of partners who are the ones who are the most active and likely the ones who will benefit the most from xPloration. We've been very busy with demos here at our Emeryville site as well as at some partner sites as well. So I think that bodes well for how things are lining up. Obviously, xPloration itself in terms of the instrument purchase is a capital expenditure, and we feel like our timing of launch was quite good and being very busy in the demo space in Q3 and into Q4 is very good timing as partners develop their budgets for 2026 and their capital spend plans. So we feel good about where we're placed. The feedback has been very positive around the efficiency of the instrument, the ease of use and kind of the broad user base from a lab perspective that xPloration can enjoy. So we're feeling good about that. Operator: Your next question is from Joseph Pantginis from H.C. Wainwright. Unknown Analyst: Can you hear me? This is [ Sara ] on for Joe. Sorry if it was muted. Matthew Foehr: We can hear you now, Sara. Unknown Analyst: Yes. Just had one regarding OmniUltra. And just wanted to get a sense of launch readiness and if you're able to, at this point, elaborate on the readiness of OmniUltra for launch? Has there been any beta or pilot projects completed or any potential partners that you already have lined up to adopt the platform once it goes live next month? Matthew Foehr: Yes. Yes, Sara. We've done a substantial amount of validation work around OmniUltra with many, many targets that we know are of interest to the industry. So that's work we've been doing here internally. And part of why we're launching the technology with 2 podium presentations at the AET conference. So we'll talk in a lot more detail about that specific work at the scientific conference at the time of launch. So we have a really good sense of the breadth of applicability of this technology and I think are really well positioned for the launch in December. So hopefully, that answers your question. Operator: Your next question is from Kripa Devarakonda from Truist. Alexander Xenakis: This is Alex on for Kripa. We also have a question on xPloration. It sounds like the conversations have been going really well. And do you have any update on the new thinking as to how much revenue can be generated from xPloration and over what time period? Matthew Foehr: Yes. It's still early days in the xPloration launch, obviously. We have said we expect xPloration to be accretive to both earnings and cash flow in both the short and the long term. That has a lot to do with kind of how the technology has been designed and how we're implementing the launch. There are multiple revenue streams that are associated with xPloration. Of course, the instrument sale itself, which will bring revenue, and we have a nice margin on the instrument. And then we also have single-use proprietary consumables as well as service contracts and maintenance contracts. So we've not given precise guidance at this point. I think as we progress through the launch, as we get additional instruments sold and deployed, we'll have more visibility there, but we're feeling really good about how it's positioned. Alexander Xenakis: That makes sense. And a little bit of a follow-up. Are there other trade shows that you're also demonstrating the technology and partnerships with? Or is it done mainly through the conversations directly with the company? Matthew Foehr: No, we are also present at trade shows where we know our partners will be. Actually, in addition to launching OmniUltra at AET, for instance, we'll also have a substantial xPloration presence there as well. And then we have some other ones lined up as well where we'll have demo units and be doing either virtual or planning in-person demos with partners. Operator: Your next question is from Matt Hewitt from Craig-Hallum. Matthew Hewitt: Maybe first up, it sounds like you had -- and I realize this is just part of the business, but you had a couple of customers that pushed out programs until 2026, milestones that you had anticipated later this year got pushed to '26. Are you seeing any improvement? We've heard from several companies this earnings season that between the M&A activity that's been pretty active as well as the funding environment that's been improving for small and midsized pharma that the R&D budgets are kind of coming back online, that they're starting to spend. And I'm just curious if this is just kind of a one-off with a couple of partners? Or are you seeing a little bit more of a broad trend that things are getting pushed to 2026? Matthew Foehr: Yes. Thanks, Matt. I mean, broadly, and we kind of noted this really starting late in Q4 of last year with strong program addition momentum, right? We are seeing continued momentum in program additions that has been sustained through this year, which is very good to see. And I think we're continuing to see momentum there. The connection or the element of milestones being pushed into 2026, I would, in this instance, categorize that as more what I consider standard development stuff, right? So it's timing of clinical batches or processes in clinical start-up, things like that. In some instances, these were programs where partners had communicated to us their plan to start in Q4 and also had committed that plan publicly, but just with kind of standard development items had drifted into early 2026. So a variety of factors. But we are seeing similar to what you were describing in terms of industry momentum, we're seeing that in the form of strong program additions. Interestingly, we're also seeing with some of our academic partners an increased focus on forming spin-out companies around assets and being much more focused on monetization of programs and assets that have come or can come out of our technology. So that's kind of another interesting thing we're starting to see as well. But hopefully, that gives you some color. Matthew Hewitt: No, that's very helpful. And then maybe kind of a similar line here, but -- and I realize it's early, it's October. But as you're having these conversations with your partners, what are you hearing as far as '26 R&D budgets are concerned? I think there was a lot of, I guess, excitement that 2025 budgets look pretty good relative to '24. And I realize there's been some fits and starts during the year, but it does feel like maybe those budgets are going to get spent. Are conversations kind of indicating that we might see an increase in R&D budgets? And I guess, tied to that, with xPloration, do you anticipate that the feedback that you're getting is that this is a Q1 purchase decision? Or could you still see some of these boxes sold already this year? Matthew Foehr: Yes. Matt, so probably our -- one of our best barometers is in the form of program starts, right? That's really what we see is that when you see a new program start for a novel target, right, a lot of work in terms of novel biology goes on upstream of that by the partner. They've obviously committed a project team, and they're starting a program. So that, again, we've seen really nice strong program addition momentum this year, and that's been good to see. So I think that's a good indicator. Most of our specific discussions around budget and budget planning more recently have been centered around xPloration, and that's really just in the capital realm. And then downstream exact timing of orders can obviously be dependent on a variety of factors at the partner in terms of what work they're doing when and how they're gating out their capital spend in 2026. So yes, that's kind of what we're seeing. Operator: Your next question is from Brendan Smith from TD Cowen. Brendan Smith: Maybe just a quick one first on OmniUltra. Again, I fully appreciate it's early, but can you maybe just help us understand how you all are thinking about the potential economics of some of those partnerships, maybe just relative to some of the other offerings that you guys have or ones on the books? And if you're envisioning maybe there could be different terms based on how they want to use it, whether for antibodies or peptides or what have you? And maybe just if you anticipate any of those could potentially replace some of the existing partnerships in any instances? Matthew Foehr: Yes, Brendan, I think we see OmniUltra as additive to the business, right, broadly applicable and opening up new fields for us. Obviously, our stable and large ecosystem of antibody-based partners now at 104. Many of those have -- or will have or already have expressed interest in OmniUltra for things like bispecifics or CAR-T therapies. We have a number of partners in the radiopharma space, which is also a space that is growing rapidly as well, and I think we'll continue to expand. But this really also adds an entirely new set of potential partners who are interested in peptide discovery. For some of our larger partners, they also are working in peptides as well as antibodies, but then there is a completely new set of partners who are more peptide focused. And that has really increased over the last couple of years with the successes of the GLP-1 drugs, et cetera. So there's a lot of investment going on in the peptide space. So we see it really as additive. In terms of your question of agreement structure, I think this does open new opportunities for us to drive service revenue in the near term for a variety of reasons. There's also a lot of precedent out there for peptide-related discovery deals that follow the frameworks that we've built around upfront payments, service payments, milestones and royalties. But precise terms will obviously be an interplay of a variety of factors associated with each license. Brendan Smith: Okay. Got it. And then maybe just quickly, if I could, just a follow-up. Just on the partner pipeline -- can you just speak a little bit to how you all are thinking about maybe the initial ramp in some of these royalties? Just I know it's kind of a range of different spaces you all are partnered in between FcRns and PCSK9 and PD-1. So just kind of wondering where you maybe see the fastest opportunity for some of those royalties to grow versus others that might just take a little bit longer to get up and running? Matthew Foehr: Yes. Yes. I mean maybe I'll talk generally about some of the programs, and then Kurt can maybe talk a little bit about kind of the revenue generally modeling around how milestones and royalties come into play. But now obviously, we have 2 drugs that are in the registration bucket, both of those currently in China. The newest is the SAL003, which is the anti-PCSK9 you referred to. So that was news here just from 4 weeks, 5 weeks back from Salubris. And they reported they submitted their NDA submission. It was accepted in China. They mentioned in their public disclosures that the NDA aligns with China's accelerated approval framework for high-impact biologics. So that was generally good to hear. And then they've stated publicly they're positioning for market entry in 2026. They've also kind of highlighted comparable or superior efficacy to other anti-PCSK9 therapies and one that will be -- that was developed domestically in China. So we'll continue to keep an eye on that. That's a drug that came originally out of our early partnership with WuXi for our rodent platforms, and it has a 3% global royalty associated with it. So that's probably the newer one. And then as you look at the Phase III assets and Phase II assets, there are a number in there that folks are rightly paying attention to. Immunovant is doing great work around IMVT-1402 and has a couple of expected data events next year that we're obviously keeping an eye on. Acatilimab with Genmab is in Phase III trials as well. That's another one that folks are paying attention to. And then now we're starting to see growing attention around Teva's 53408, which is an IL-15 for celiac, and they're also pursuing some other indications. They've been really moving that quite aggressively and highlighting the program. So we're cheering that on as well. But Kurt, maybe you want to talk through the... Kurt Gustafson: Yes. I mean I think in terms of how we think about the royalty ramp, we typically take a look at what analyst consensus are for these drugs. So both acasunlimab and the 1402 compound, I mean, Genmab has been out there, said that they expect to launch in 2028. When I take a look at analyst estimates, that's sort of what they're projecting as well, and there's a ramp associated with that. It's similar with -- similar timing for 1402. So we take a look at those analyst expectations in terms of how we model the royalties that we might ultimately get. And they're pretty nice ramps and people have pretty nice forecast associated with both of those compounds. They're expected to be very large drugs. Operator: Your next question is from Stephen Willey from Stifel. Unknown Analyst: This is [ Josh ] on for Steve. I just had a quick question on OmniUltra and how it differs from OmniTaur. I think I remember the OmniTaur platform sounded very similar with this generation of these ultra-long CDR3s or CDRH3s. Could you maybe just provide some color on how these platforms actually differ? Matthew Foehr: Yes. Great question, Josh. And I'll try not to get too geeky and technical. OmniTaur actually leverages cows, right? So these are sequences that are derived out of cows. And also, we've developed some downstream workflows and other things that drive value in OmniTaur. And we actually have a number of active OmniTaur programs, some of which are now at the preclinical stage approaching IND. OmniUltra leverages a chicken host to get that advantage of the evolutionary distance, right? So you're able to leverage that distance of chickens from mammals to elicit a stronger immune reaction. And we've also engineered in some other features that have increased kind of the broad applicability of OmniUltra into a variety of spaces, including opening up opportunities in the peptide space. So at the core, the difference is the host, but there are obviously a number of other kind of finer technical details that broaden the applicability of OmniUltra. Unknown Analyst: Okay. Great. And then just another question on the xPloration revenues. Is there any color you can maybe offer as to the breakdown between maybe the consumables versus the software versus the hardware? And do you think -- do you anticipate maybe in the future providing any kind of metrics around the breakdown of sales related to the xPloration platform? Matthew Foehr: Yes. No, it's a good question. I think there's not really a breakdown that we'll have for you this quarter. It wasn't a huge amount of revenue. It was -- I guess I would say it's mostly related to consumables. I think it's still early days with the xPloration launch. As we get more into it, I think we'll probably be able to provide some -- a little bit more color on sort of what the average consumable usages per instrument and put out some other metrics like that. But at this point, it's still pretty early. So stay tuned for that. As we see the launch continue and progress, hopefully, we'll be able to provide that type of color. Operator: Thank you. There are no further questions at this time. I will now hand the call back over to Matt Foehr for the closing remarks. Matthew Foehr: Great. Thank you, operator. I'd like to thank everyone for joining us today on today's call and for your questions and engagement. We look forward to discussing our fourth quarter financial results early next year. In the meantime, we'll be participating in a number of investor conferences later this month, including Truist's BioPharma Symposium this week in New York, Stifel's Healthcare Conference that is next week and the Jefferies Global Health Conference in London. So as I mentioned, on December 15, we'll also have -- we'll be formally launching OmniUltra, and we'll have an investor webcast that day as well. And we look forward to providing additional details on that webcast next month. So thanks again, and have a great afternoon. Operator: Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect your lines.